No problem. Russ.
>>For me, the key determinant of a Bubble is the following question, are people leveraging up, and spending beyond their incomes? In otherwords is behavior such that they are buying more than they can afford, and using cheap debt to do it? <<
Generally speaking, in order to buy any apartment/house in China, one has to have at least 30% down payment. And this is for apartment/house 5 years or newer. For buildings of 5-10 years old, down pay has to be at least 40%, for buildings of 10-15 years old, down pay has to be at least 50%, and for buildings of 15-25 years old, down pay at least have to be 70%, and for buildings older than 25 years, banks usually refuse to loan any money. That is why Chinese scholars claim the financial risk of Chinese banks is low. Although you may hear or know a couple of people can buy a new house with lower than 30% down pay, but very few people can do that.
In big cities, most of people only own a low-end apartment built by the gov., usually older, and sold very cheap to them (anywhere bet. 7,000 Yuan to 12,000 Yuan depending on your working seniority for an apartment of 50-70 sq. meters), and only cash accepted. So no risk there.
Many people who can afford to buy high-end apartment of 100-200 sq. meters use cash, believe it or not. I have 4 sisters and a brother in Beijing, 2 of them can afford and bought high-end apartment, all with cash. BTW, they are not corrupted officials, just make some honest money, although work very hard<g>. Plenty of people like them who are 35 years or older buy good apartments with no or little loan in major cities. BTW, it is relatively easier to save money in China comparing with here in the US if one wants to save. Most of people who take loans to buy apartments are younger people in cities. They usually get paid lower, and save less.
So one could never leveraging themselves up like some in the US, because banks do not lend. And generally speaking, Chinese do not like to have debt, so they try to borrow less, and whenever possible, they pay back as fast as possible. Younger Chinese may change this cultural tradition, but it takes time<g>. Here in the US, almost every Chinese I know who bought a house are taking 15 years of loan (some had 30-year loan but later changed into 15 years), and try to return all the money faster.
>>Another marker: are outsiders showing up and buying properties on speculation, and not using them, or use them "lightly". <<
This definitely exists in most cities. But the speculators usually have cash to do this. And the sole purpose they buy apartment is to buy low sell high. I have no sympathy whatsoever in case the bubble bursts, and they get burned<g>
There is a group people from WenZhou, they used their own money to go to quite a few cities, buy low sell high, and responsible for the fast increase of the housing price there. Those cities later changed the regulation to prevent them to do it any more, but the damage has been done. BTW, I read this WenZhou group has come to Long Island NY, and bought some houses there<g>
>> Is a property used 23 days a year vacant in China or the US? <<
No I don’t think so, since it was sold already<g>. But I don’t think there are many properties like that, if you don’t count time-share<g>.
One thing to keep in mind is that there are few rental companies, but there is a good rental market. Some rich people buy several apartments with cash, live one themselves, and rent out the rest.
>>So my inquiry goes right to the heart of behavior in China (or anywhere), how much of this is speculative leveraging up?<<
Like I said, most of them bought with cash. So if the bubble (if there is one) bursts, they will burn themselves. No banks can lend them money for speculation legally.
The housing bubble in the US is much harder to control comparing with China due to the private land control and bank allowing 5% down pay to buy house in the US.
As for the office building vacancy in Beijing: office buildings are separated into several classes. The vacancy rate for highest class office building in Beijing was 9.5% at the end of June, down from 12.4% at the end of March. And for Shanghai, as of the end of March, the vacancy rate for the highest class office building was 11.1%, down from 11.5 the end of 2003. So at least up to the end of June, the office building vacancy rate for both Beijing and Shanghai were trending down. Whether you believe in the official number will be another question<g>. But personally, I think this number should not be off too much. |
