Daily Lessons from Life 22 December 2009

"Top China developer warns of property bubble -paper - Tue, Dec 22, 2009 Reuters

BEIJING - China Vanke , the country's second-largest property developer, warned of a property bubble forming in major cities including Beijing and Shanghai as a result of the surge in bank lending this year, a local newspaper reported."

It is interesting that the property developer who supposedly has the most to gain from surging property prices are sounding the warning of a property bubble forming. The major shareholder of China Vanke, Mr. Wang Shi, is a legend in the China business world, as he made his billion when he was very young and had been spending time doing what Sir Richard Bronson is known for - being 'out-of-box' and engaged in adventurous journeys here and there.

Lessons for me are:

1. a flat or apartment or house is to prove a roof over our heads. That is the most basic function. Over time, sophistication set in and people started talking about investment properties. Even that is to get rental. Which in many cases are not returning payback of spectacular proportion. Then someone created 'wealth' with the 'market value far exceeding the original purchase price' move and suddenly everyone is buying investment property to make some super capital profit when selling their property! This really defied logic but as long as it is funded by credit, the wise ones who were in made lots of money;

2. in Asia, as in many other countries actually, this boom and bust cycle keeps repeating itself with each cycle bringing its fair share of 'losers' and a minority of 'winners'. I am not sure this vicious cycle can ever be stopped if the government of the country does not have the political will to make sure that the pursuit of 'GDP growth', which seems to be the only measurement of how successful one governs, is not BUILT upon the rapid growth in property prices. It is easier to get this GDP growth through property development as it employs labour, need materials, equipments, housing for the workers, consumption generated by the workers who get paid, land taxes to fill the government coffer, etc...;

3. I commented way back in 1993 when I first came back from my short term assignment in land scarce Hong Kong where their flats are built sky-high and the built up area very small and expensive, that it is a sad situation if any country allowed its housing policy to produce similar living condition. Most Asians in the mega-city simply work to afford a living space. Some countries even have 3-generation mortgage! It is absurd but it is a reality too. Increasingly people seems to have resigned to accepting that this their fate. I beg to differ as I will NOT be a slave to a flat or house.

May the Chinese government pursue the right course of actions despite going against convention wisdom (or the 'market rule') in handling the housing needs of its billion of people. If not handle well, the house of cards as depicted in the USA CNBC Special Program on the 'Financial Crisis triggered by over-inflated and over-leveraged housing mortgage' will happen in China.

That will be a day none of us want to see. A distant possibility? Impossible? I will not defy gravity!! ;-)