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|User Info||Failed Bond Auction In... CHINA?; entered at 2010-04-09 08:17:58|
Business Week April 8th 2010|
Charlie Rose talks to James Chanos of Kynikos Associates about the coming property bubble in China. Q: What makes it a bubble? A: What we define as a bubble is any kind of debt-fueled asset inflation where the cash flow generated by the asset itselfa rental property, office building, condodoes not cover the debt incurred to buy the asset. So you depend on a greater fool, if you will, to come in and buy at a higher price. Were seeing behavior [we saw] in 2005 in Miami or 06 or 07 in Dubai.
This is high-end condos in major urban areas and high-end office buildings. Just to give you an idea, right now construction costs in China are starting to hit $100 to $150 per square foot in some cities. That doesnt sound like a lot by Western standards, but it means a condominium basically presented to you with no floors, no walls, no appliances costs the average Chinese two-income couple $100,000 to $150,000 U.S. That Chinese two-income couple in their 30s probably makes combined $7,000 or $8,000 a year. You do the math.
Even if they were making $10,000 to $15,000 a year, they couldnt carry a $150,000 condo. This is very similar to someone making $40,000 in the U.S. at the height of our bubble buying a $600,000 or $800,000 house. We know how that ended.