“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.
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.
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