"The Chinese are treating apartments like Beanie Babies."

[randomness]

Jay Hancock explains how the Chinese housing bubble is different from the American one:

A Chinese housing bubble is not like an American housing bubble. The American bubble has popped. The Chinese one hasn't. Yet. Americans bought houses. The Chinese in Beijing and Shanghai buy apartments. Americans bought with no money down. Many Chinese still pay cash with no mortgage. American real estate was lived-in during the bubble and became vacant afterward. Hyperappreciated Chinese real estate, on the other hand, is already vacant. Nobody ever lived there, at least to a large degree.

More than half the apartments in Beijing and Shanghai may be unoccupied, China Daily reported last summer, citing figures from Sina.com. In Hainan it may be as high as 70 percent. The titles are clean. The mortgages are paid on time, when they exist. But nobody's home. And the owners wouldn't think of renting, says Patrick Chovanec, associate professor at Tsinghua University in Beijing. They don't want to mar their precious assets with people walking on the floors and opening and closing the doors.

Apartments seem to play the same role in modern China that gold often does in India -- a place to invest and store your money. Wealth is cascading into Beijing. But you can't invest it in the S&P 500; currency and capital controls prevent investments abroad. You could put it in bank and earn 2 percent, but Chinese inflation is perhaps 6 percent or 8 percent. Who wants to lose money doing that? So the Chinese sock their savings away in a nice flat, and since nobody wants a used apartment they don't allow anyone in the place.

In a comment, A. G. Sage sums it up in one sentence: "The Chinese are treating apartments like Beanie Babies."

Comments

[achinhibitor.livejournal.com]

The fact that each individual actor is pursuing the best course that he can determine with the information available to him does not mean that the entire system is behaving in a way that is anywhere near optimal. OTOH, that doesn't mean that anyone knows of a better way of organizing things, either.

The current situation in China is still the best thing to happen to human well-being ... ever. When the bubble pops, it will still be so.