China Property vs HK property?

China Property vs HK property? Which property market has better investment value in 5 years time? or US property market?

Who knows? To a large degree, it depends where you are now, where you are from and possibly where you can work. As a foreigner, I would be very wary about buying in China. I cannot work in the US and I don't want to manage a property that is thousands of miles away. So I would stick with HK for convenience sake and for the rule of law.

The National Bureau of Statistics reports that China had 9.8 billion square meters of property under construction in October, of which 4.8 billion was residential. China is building roughly 50 Hong Kongs. Compare this to the requirements for urbanization and overbuilding is apparent. So it is high risk to pursue urbanization per se for juicing up GDP growth. It will lead to bigger debt crises down the road.


How Will Tier Three Cities Succeed?


The 2008 stimulus catapulted a massive construction boom in tier three cities. Property developers poured funds into them, believing that the lower land prices were an arbitrage opportunity relative to tier one cities. The land sales revenues pumped up their fiscal revenues and increased local purchasing power for properties. For a period, the arbitrage seemed to be working. Unfortunately, it was a self-fulfilling bubble. As the funds inflow slows, purchasing power declines too. This is why the property sales in tier three cities have dropped so dramatically.


Some local governments blame property-tightening policies for their troubles. But, such policies are not in force in tier three cities. If one looks closer, a lack of competitive industries is to blame. Why would people pay lots of money for a property in a city without good job opportunities? China's villages are like small cities anyway. Housing has no cost there. So, if one is left without much to do, staying in a village is a better choice.


Small cities must survive on some industries that are competitive in the global economy. That is how such cities in Europe or the United States survive. Some cities are merely company towns, depending on a single firm. When the company loses competitiveness, the whole town loses viability. This is why there are ghost towns everywhere.


Living on building a city itself means building ghost cities to begin with. It is happening in China because the financial system is government-owned and credit allocation is heavily influenced by political considerations. Still, if there is enough money to build a city, how will it survive afterwards?


The Changsha Model


In a property market downturn, Changsha is selling more than any other city. Why is this tier two city able to do this? The reasons are that its industries are competitive, growing and attracting more workers, and its property prices never went crazy and are close to two months of salary per square meter. Affordable prices and booming industries support the property market there. The property market can only follow, not lead an economy.


A decade ago, I wrote that Wuhan could be China's Chicago because I anticipated the gradual migration of industries up the Yangtze River. I failed to recognize the industrial dynamism in Changsha. Then, it was small compared to Wuhan, but it is now comparable in GDP and fiscal revenue. Its success is due to its focus on industrial development. Now it is in a virtuous cycle. Successful factories attract others. The self-feeding process will turn it into one of the largest industrial bases in China

===


/Andy Xie: http://www.morningwhistle.com/html/2012/blog_1207/215926.html