The Smart Money Is Selling

In the middle of this article, Zhang Xin tells us exactly why credit bubbles grow and then why they pop: the cost of debt eventually exceeds the profit.

In Chinese Property, Smart Players Are Selling
More property developers are going abroad in search of fatter profit margins, according to Zhang Xin, Soho China's chief executive officer. At a forum this month, she highlighted the high cost of financing in China, saying that while rental returns from projects in Beijing and Shanghai are only 5%, interest on bank loans is 7%. "I lose 2%," she said.

She said that in Manhattan, the rental yield is 5% but the cost of financing is only 2%. In a private purchase last year, Ms. Zhang bought a stake in the General Motors building in Manhattan with a partner from Brazil.

Ms. Zhang said in an interview last month that the firm has cash totaling 22 billion yuan ready and waiting for a market correction. "We saw the first wave of credit crunch last summer," she said. "We already sensed that it is going to get worse and liquidity is going to dry up."

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