[cobran20]

link

Quote

The boom was great whilst it lasted. As one saleswoman told the Journal, “everyone has at least two or three properties and lots of people have seven or eight.” Now, prices have stopped rising and sales have slowed, as bank lending has been cut.

Nationwide, China has 306 billion square meters (3294bn square feet) of property under construction. But sales to the end of October were just 709 million square meters. And prices have begun to fall, as the government moves to reduce inflation.

As the Journal notes, “speculators buy property because it is rising in value”. When prices stop rising, they often head for the exits. But as Hyman Minsky observed, they then find there is no way to sell.

China has an awful lot of empty property owned by speculators such as those in Ordos. Last year, for example, its Academy of Social Sciences estimated there were 64.5 million empty houses and apartments that were owned by somebody, but used no electricity.

The Minsky Moment for its banking system is probably now underway.

[wulfgar]

China expanded their currency at a very constant and stimulatory 11% p.a. prior to the Olympics and the GFC. At some point of time it was expected the Chinese would float their currency and adopt mainstream fiscal standards. But it wasn't to be and instead they increased the print rate to 16% p.a.

In China it pays to borrow money because your debt is inflated away, hence the property speculation which looks insane even to us.

But now finally property prices are starting to crumble and the only thing to stop that would be to print at an even greater rate.

Aus printed at 15% p.a. in the 70's. You could buy a house in 1970 and find your repayments costing a days minimum wage by 1980. So for the Chinese it didn't matter what fantastic sums they paid, the belief was it would be eroded by money printing. If China keeps this sort of printing up the Yuan will actually start to fall against the USD despite the draconian fiscal controls.

[wim]

wulfgar, on 10 December 2011 - 07:56 AM, said:

Aus printed at 15% p.a. in the 70's. You could buy a house in 1970 and find your repayments costing a days minimum wage by 1980.

Really???

Ridiculously high minimum wage in 1980 would be $20 per hour. So $160 per day. Could you really buy a house for $160 in 1970?

Or did I misinterpret your point somewhere?

[wulfgar]

wim, on 10 December 2011 - 08:49 AM, said:

Really???

Ridiculously high minimum wage in 1980 would be $20 per hour. So $160 per day. Could you really buy a house for $160 in 1970?

Or did I misinterpret your point somewhere?

No, the minimum wage was $150 pw around 1980 and had been $40 pw in 1970.

The median Melbourne house price was $12,800 in 1970 and about $39,000 in 1980.

Currency in circulation quadrupled from 1970 to 1980.

[cobran20]

wim, on 10 December 2011 - 08:49 AM, said:

Really???

Ridiculously high minimum wage in 1980 would be $20 per hour. So $160 per day. Could you really buy a house for $160 in 1970?

Or did I misinterpret your point somewhere?

I think wulfgar implied that the monthly repayment for such house only required a day's work based on the minimum monthly wage.

[tor]

cobran20, on 10 December 2011 - 11:11 AM, said:

I think wulfgar implied that the monthly repayment for such house only required a day's work based on the minimum monthly wage.

...and after 10 years of 15% money inflation.

Sounds a reasonable thesis.

Of course I have lived in apartments built and decorated in the 70's. I even had one of those beds that folds down out of the wall! Man I am glad those days are gone.

[wulfgar]

cobran20, on 10 December 2011 - 11:11 AM, said:

I think wulfgar implied that the monthly repayment for such house only required a day's work based on the minimum monthly wage.

Interest rates where around 6% in 1970 and rose to 10% in the mid to late 70's. An interest only loan for the Melbourne Median 1970 would have started at around $1100 p.a.