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The Bubble In Chinese Vacation Homes at Trader’s Narrative




The Bubble In Chinese Vacation Homes


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“There is always a bull market somewhere” - so goes a Wall Street maxim. Today that is very true - at least for now. And we need only consider the Chinese real estate market. Especially the Chinese speculative market in vacation homes.

According to EWI’s Asian analyst, Mark Galasiewski, one sure fire way to recognize a real estate bubble is to see a spike in non-essential house prices (vacation, second homes, rental income properties, etc.). Basically anything that isn’t intended to be owner occupied.

china real estate bubble vacation homes EWI May 2010

The Chinese market is so out of control that it has started to export its speculative forces to other markets. For example, from the east it has leaked into the Vancouver market and made life very difficult for Canadian regulators. From the south it has leaked into the Australian real estate market and re-inflated that bubble. Jim Chanos has been one of the loudest critics of the Chinese market and ultimately economy.

But according to Galasiewski: “If recent history is any guide, property booms do not end in parabolic blow-offs that fall straight back down. Instead, they gradually slow their pace of ascent over many months before turning down.”

In the recent case of the US, Miami and Las Vegas saw new home prices jump 32% and 53%, respectively, at their fastest points of growth. But these steepest rates of change occurred 14 and 22 months before prices crested. The same was true of the US national average. So if we apply the same logic to China, then the recent price spikes in Haikou and Sanya (and China as a whole) might still have legs for a while. But when the market does crash it will be very very ugly.

You can read more of Galasiewski’s analysis in the May issue of The Asian-Pacific Financial Forecast and Global Market Perspective.

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2 Responses to “The Bubble In Chinese Vacation Homes”  

  1. 1 vreaa

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    (comment cut because of use of ‘less than’ sign!) here we go:

    We know that, given what is happening in Chinese RE and given what is happening in Vancouver RE, it seems natural to draw a causal relationship (namely: China->Vancouver) but do we actually know that is what is happening?
    What actual evidence do we have that the Vancouver RE market is being driven directly by China? We know of some high end properties being sold to foreign investors, but has that percentage actually increased? (it’s always been less than 5% of sales).
    Also, James Chanos, in a recent interview, referred to the REVERSE effect, that Chinese living in Singapore, Vancouver, etc, were goosing the Chinese RE bubble! Bizarre. (Of course, the two possibilities are not mutually exclusive).
    We have personally long been of the opinion that Chinese investors here in Vancouver have a small direct effect on the market, but a large INDIRECT effect in that the ‘China Story’ has driven locals to borrow and speculate like drunken sailors.

  2. 2 happy

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Also, James Chanos, in a recent interview, referred to the REVERSE effect, that Chinese living in Singapore, Vancouver, etc, were goosing the Chinese RE bubble! Bizarre. (Of course, the two possibilities are not mutually exclusive).
    We have personally long been of the opinion that Chinese investors here in Vancouver have a small direct effect on the market, but a large INDIRECT effect in that the ‘China Story’ has driven locals to borrow and speculate like drunken sailors.

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