More on the Shenzhen property market. When will China build the world’s tallest building? NOAH collapses.
I have gotten more information on the property market in Shenzhen. There are all kinds of homes in the villages, but a typical old-fashioned setup would be a duplex–two apartments sharing an entrance. I am looking to get exact measurements and pictures of various properties, but from what I understand each apartment is something like 1,200 square feet. Prices for such apartments are 750,000 RMB, or roughly US$111,000. Shenzhen’s per capita GDP is $13,600. A Shenzhen couple would typically earn $17,000 in a year, or about 15% of the cost of a home. In America, it would be typical for a couple to earn $100,000 in a year and live in a $400,000 home–a 25% “earning yield.” Shenzhen’s personal income taxes are progressive but similar to U.S. rates. Food prices are shooting up all over the world, but it hurts Chinese consumers more than Americans. So this is a plain example showing that real estate in Shenzhen is very expensive relative to income.
If you did this sort of calculation in other Chinese cities, I am pretty sure you’d come to a similar conclusion. It simply cannot be denied that real estate in China is overpriced. There is a huge overcapacity of money and it cannot yet move to an optimal place.
Some people have observed that a good time to short the market is when the tallest building in the world is under construction. The Empire State Building, Sears Tower, WTC 1 and 2, Petronas Towers, Burj Khalifa all went up prior to severe recessions. I don’t expect any building to surpass the Burj Khalifa for a long time. So it’s enough that the second tallest building in the world is under construction in Shanghai. It’s time to build shorts.
My short in NOAH has dropped from $18 to $12. I’m not sure what to do with the position now. Perhaps I will wait for the insiders to bring it even lower.
