Search This Blog

Monday 23 September 2013

Bubble what bubble? Australian properties are cheap compared to Shanghai and Beijing

Beijing and Shanghai, the center of political power and commerce gateway respectively holds many attractions for those pursuing political influence and wealth.  But who really wants to live in Beijing, a city that is slowly being encroached by the desert and adjectives such as 'deadly' or 'dangerous' routinely used to describe air quality.  How about overbuilt and congested Shanghai?  Boiling hot and humid in the summer and freezing in the winter?

Well plenty it seems judging by the property prices in Beijing and Shanghai.  A recent snapshot video from Reuters of property prices in Shanghai is pretty shocking particularly when set in context to Shanghai's average salary of US$8,357 (2011).

The reporter visited three apartments:
  • Near Donganlu Subway Stations and Hospitals 3 Rooms 2 Baths 130sqm - $1m ($7,700 per sqm)
  • Near Xujiahui Subway 3 Rooms 2 Baths 142sqm - $1.5m ($10,600 per sqm)
  • Nanjinglu Subway 1 Room 1 Bath 63sqm - $0.7m  ($11,100 per sqm)
Now contrast that with a recent sale of a house in Eastwood, a generally Asian suburb in north east Sydney Australia which was recently sold at A$1m above asking price for A$2.39m.  The property comes with 800 sqm of land making it a mere US$3,200 per sqm a snitch when compared to Shanghai apartments.  Add in lots of sunshine, a world class healthcare, freedom of expression, a money laundering haven, fresh air and cadmium free fresh produce makes it a bargain.

With China printing money like crazy to counter the threat of US money printing, Chinese citizens both wealthy and the corrupt are using their artificially inflated overvalued currency to go out snapping properties in US, Europe, Australasia and South East Asia.  Beijing and Shanghai with a combined population of 44m and assuming only 1% have the means to buy overseas, it is already enough to push up property prices.  I have not even counted people from Shenzhen and Guangzhou. 

Throw in US, Hong Kong and Singapore investors and you can throw out conventional analysis of income to house price, yields, interest rates, historical averages etc.  These tools are meaningless from the onslaught of toilet paper cheap money.

The stupid esteem Reserve Bank of Australia have kowtowed to manufacturers and real estate developers to replace the loss of output from mining by devaluing the Aussie dollar.  By doing so, it has open the floodgates to foreign investors.  And when the tide finally rolls in, it is going to be party time.

Supporting housing is like supporting a drug addict with an extra shot of heroin - enough said.

And by the way, manufacturing died a long time ago.  Forget about having a competitive currency, just to visit China or Germany and look at the complex supply chain infrastructure to support the manufacturing industry and you'll understand why it is dead.  Sure Australia have some comparative advantages in Healthcare and Education but these are unlikely to be able to replace what is being lost.

The right way to look at Australian real estate is to compare it to other major cities.  With any kind of restriction placed on foreign buyers legislated away, real estate has become a global market.  Through that lens, talk of bubble is just rubbish, Australian property remains cheap.  In fact so cheap it should at least double or triple.

This is the unintended consequences of currency wars and losing control of monetary policy to the printing press. 

Buy with the abandonment, don't fight the central bankers.

No comments:

Post a Comment