According to Chinese government statistics, YoY property values appreciated by 9.5% in the year to January 2010. However
"Research by Standard Chartered published earlier this week estimated nationwide land prices more than doubled in 2009, but that figure is likely well below the true rate of gains, the report's authors said.
For one thing, the report excluded some bizarrely inflated data.
Standard Chartered's Shanghai-based head of research Steven Green said that figures showing an 880% rise in the eastern Chinese city of Wenzhou were axed from his analysis, as were "similarly crazy" data for Hainan's provincial capital Haikou."The level of appreciation was so high, we took them off the chart," Green said.
Even so, they found land prices in seven cities tripled -- based on their projected value when developed -- while those for a gauge of 10 cities, including Beijing and Shanghai, rose an average of 147%."
http://www.marketwatch.com/story/china-real-estate-gone-wild-a-case-study-2010-02-13?reflink=MW_news_stmpThe top comment on Marketwatch?
"Have people lost their minds? Most of the developed areas of China are in a MAJOR REAL ESTATE BUBBLE with massive vacancy rates. Here in this island there is a 30% vacancy rate, and yet prices have been bid up 40% in one and one half months so far this year. Who is financing this kind of utter nonsense? There are going to be HUGE LOSSES for those making these kinds of loans."
I don't always agree with the Marketwatch commentariat but in this case it's absolutely right. But have people lost their minds? It's not as if the Western and Japanese examples of bubbles aren't well known.
Two theories
1- People know it's a bubble but don't care because the loan is available. Hence, there is no real risk to them if they fail to repay. Whereas people used to be thrown in prison for defaulting on debt, that is no longer the case, not even in China.
I think this is the most likely explanation. The lenders also don't care because they are just following the central directive. The fault lies at the center, which is not moving aggressively enough to burst the bubble. Last week's reserve requirement hike to 16.5 percent does nothing because most banks are already holding 18 percent reserves. The Central Committee apparently thinks that they can gently deflate this thing. If the Standard Charter report is correct that's not possible. The only best outcome is to burst it as soon as possible to prevent an even worse bust.
2- The Keynesian beauty contest. I think this is valid in more long term multi year bubbles. The idea is that people know the bubble will burst, but they invest anyway because they believe the next sucker will buy at an even higher price. This theory I think was valid for much of the US housing bubble and Nasdaq bubble psychology, however the speed of the Chinese bubble is almost too fast for a Keynesian beauty contest to develop.
