Your Landlord is Lei Feng; Real Estate Top Is In

A few days ago I posted A History of Real Estate in China and Why Prices Will Fall Straight Down, an article arguing Chinese home prices have ended a 30+ year ascent. Interestingly, today this story was again the top headline at iFeng's real estate section, but it has a new headline and intro. The new headline is "are current home prices like A-shares at 5000?"

Most of the article is the same, but the new intro looks at two familiar measures: how many years of earnings are needed to buy a home, and rental yield.

Price to earnings ratio, home price divided by personal income, it means not eating or drinking for several years to buy a house, Singaporeans need 4.5 years, in the United States it's a little more than 6 years. And China is how much? According to conservative estimates, those first-tier cities Beijing, Shanghai, Guangzhou, you now have to wait 2 or 3 decades. Look at another indicator, the rental yield, is to rent out a house, how many years can recover the cost of a 90-square-meter house? For example, the monthly rent of 4,000 yuan, while the price of at least 4 million, the house price-earnings ratio is about 83 times, in order to recover the investment, have to wait at least 50 years. The annual income is only 1.2% or lower, not even as much as a one-year time deposit. Stocks trading friends can tell you, this stock is clearly very overvalued.
This is one reason why I was saying to buy equities instead of homes a few years ago and even though I suspect the bottom isn't in yet, I would much rather be holding A-shares at 3% yield than an investment property. In fact, if you rent out a property in China and owe a mortgage, you are essentially involved in providing for the general welfare:
In addition, in real estate there is another way to calculate, that is in fact to buy a house for rent makes your landlord Lei Feng, think about it, spend 4 million to buy a house, make a down payment of 50%, every year he pays the lenders 150,000 to 200,000 yuan, and this house rents for 100,000 yuan a year, in other words he buys a house you live in, he pays you a 5000 yuan monthly subsidy, if you are able to rent for 20 years, the landlord can simply go die, because after 20 years his mortgage is repaid, the house has become a very old old house, and do not forget that theoretically the landlord can only rented it for 70 years, a third of the time given to you.
The author goes on to write the argument in favor of higher home prices: people are moving to the cities and demand is strong. He answers:
In fact, the crux of high prices is not demand, but expectations. We have already turned homes into an investment product, we feel prices will rise, so buy up all the way, people with no need for housing will now have a need, because who do not want to earn a lot of money? Plus from time to time there are buying restrictions, credit restrictions, this further enhanced the house this sense of scarcity, it artificially created a tense atmosphere. So it's hard for prices to not rise.
Two big changes underway are well known: contracting population demographics (China's Housing Demand Will Collapse In 10 Years, The Average Married Couple Will Inherit 6 Homes) and slowing monetary growth. Another factor is the death of the urbanization dream for migrant workers:
The third is waking up from the the urbanization dream, I always think back there the majority of the farmers brothers into the city, there are more dumber than me buying houses, but now only find people do not want to come, finding unskilled jobs is more and more difficult, nobody comes to recruit for job postings, gradually rising labor costs, coupled with an aging population, household registration system can not be resolved, the land transfer system did not materialize, so it is very clear that the city will not accept them, doing no more, have been forced to leave, migrant workers are not stupid, they came to the city to make money. Make money and go home to build a house, your city's high prices have defrauded you, the real estate golden years are over, and now see how this evil tryant in the end will try the people.
Before getting into the history lesson that is copied from the prior article, the author closes:
In fact, there is a logic to buying a house, it is inflation, after the money is worthless, the house is definitely more expensive. This logic was established 10 years ago, but the main problem will be after a decade of deflation the people whose fortunes are built on debt maybe back in poverty. An obvious change is the first decade of RMB appreciation, now the yuan has entered the depreciation cycle, so if you use the same tactics, in the future I'm afraid you will encounter great risk.

iFeng: 中国房价变迁史:当前房价就是A股5000点?

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