Chris Martenson - Guest Post: The Two Keys to Understanding China’s Housing Bubble:
My wife and I are fortunate to have a network of contacts and friends in China, and we learned that as long ago as 2004, the typical two-income middle class household in China—those in which wage earners make around $5,000 or more a year each—was buying one, two, or even three flats for investment purposes.
The apartments were not rented out, as this lowered the resale value, and renting out flats was a burden busy people didn’t care to shoulder. Since there is no property tax in China that is analogous to U.S. parcel taxes, and since the vast majority of buyers paid cash, then the carrying costs for these investment properties was very modest. (The equivalent of maintenance/condo fees in most of China are typically well under $100 per month).
Why are Chinese dumping the majority of their savings in housing? One reason is that there are precious few investment options, and many investors felt burned by the volatile Chinese stock market (as they are not allowed to invest in overseas funds). Real estate has two advantages over stocks: Everyone understands it has value as shelter, and housing has been rising far faster than China’s not-quite-benign rate of inflation.