Category: Economy

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The Awkward Real Estate Dynamics in China

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Unlike any other country, China has experienced a prolonged growth in its real estate markets for a very long time. In fact, much longer than any other ones we have seen in the other countries in the past. Is it something sustainable? Well, I am going to discuss about this from a slightly different angle instead of the more traditional evaluation approach. Namely, I will look at the whole situation from the study of the participants in this interesting market.

The Rising Tide Lifts Everyone on Board

Over the past thirty years, China has been undergoing huge reform in its real estate market. The efforts to modernize the major cities and the relaxation of regulations to ownership of realty created the biggest boom in real estate markets across the country. Many people were assigned title ownership to various real estate and related resources as the laws changed. This alone created massive amount of wealth into the hands of the people who had the right connection or status at the time.

Let’s ignore the issue of fairness and whatever moral value you uphold for the moment, as this article is not about that at all.

What is important, however, is that this wealth effect has profound impact on the psychology of the people in China.

Those Who Won Big Without Knowing Why

Those individuals and their families who got the chance to ride on this boom have no idea why and how they actually become wealthy over such a short period of time. Just like any other people in the world who have similar kind of fortune, majority of people who won this lottery game of real estate attributed the success to themselves being smart, to their country being strong and for some with nostalgic beliefs, that Chinese civilization somehow helped them to get to where they are now.

Of course all of these thoughts are plain wrong. They are put into the right place at the right time. i.e. dumb luck

Well, ignorance is a bliss …

Those Who Have to Park Their Money Somewhere

During this wild west type of economic expansion and discovery process, the must have element of corruption and grey area deals for which money are made unethically, of course, are happening everywhere in China at the same time. These money, however, cannot enter the modern banking system easily because, even China does monitor outlier deposits, after all.

One of the obvious routes to park the money, of course, is with real estate, just like everywhere else in the world.

In fact it is a good example why real estate markets are the number one choice for dirty money. Since these money cannot be taken to the bank to exchange for the banknotes with the highest value, the space the money will take up now matters. Just imagine the actual physical size of the paper money needed to hold the value of a property. With small denomination banknotes, they will occupy more space than the property itself!

The Speculators Who Thought They Know

And then there are those short term speculators who think they know how to profit from this real estate boom in China. Of course there are many people who made a lot of money from this bull run. It is again no difference from speculation of real estate in any other parts of the world. The funny thing is, however, how leveraged these speculators can be.

According to various studies, Chinese speculators are the most leveraged speculators in real estates comparing to any other places in the world. Their voodoo beliefs in real estate markets can never drop drive them doing things that any people with common sense would never do. Yet, those with common sense are the ones who have been left behind in terms of financial well being over the past ten years.

So Who are the Suckers Here

Normal hard working people without special trade skills like a professional designation (i.e. doctor, accountant, etc.) will never see the light to even paying for their down payment for a decent apartment in China. Those young professionals will be able to afford buying their own property at the cost of turning into debt slave for the rest of their lives. Yet, they represent only a very small percentage of the population. Hence the important players in the real estate game in China are those who are already on board, either by dumb luck or out of necessity (e.g. dirty money) and those active speculators who continue to actively buying and selling in the current market environment.

Since the dominating players still playing this game are relying on the Chinese government to support the real estate markets as oppose to having at least one valid reason, I think that everyone in this game are suckers at this point, maybe except the central Chinese government itself. It is just a matter of time the Chinese housing market will collapse significantly.

Feature Image: Stanley Street Market in Hong Kong

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Singapore: Searching for a New Identity for Survival

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After talking to many people in Singapore from all walks of life, my impression is that it is no longer the uplifted, high energy place it once was. In fact, many factors that are contributing to its long term well being are no longer there. Similar to Hong Kong, Singapore can no longer depend on what it built in the past to thrive in the coming decade.

Real Estate and Financial Industry

The decline in Singapore’s real estate market has been on-going since 2014. Many analysts in Singapore think that the bottom is near. Well, I am not that optimistic. From my conversations with many people who work in the financial industry there in Singapore, many firms are ending their contracts with local staff and sending their own people back to their home countries. That means one segment of high income earners in Singapore is disappearing which is the real reason why Singapore’s real estate markets are under pressure.

In other words, Singapore is facing its biggest challenge ever as its role being an important financial centre in Asia is now at risk. We cannot tell if these major financial institutions will expand their businesses there in Singapore in the near future, but usually this type of business planning is at least 5 years or longer. Hence it is reasonable to say that if, ever, these firms will be thinking of growing their businesses in Singapore, it will be at least 2 years from now. The 2 years estimate is based on the fact that these firms moved out since 2014.

Tourism

As a tourist destination, Singapore is usually a one to two day tour city because of the overall size of the place. Majority of tourists who visited Singapore for leisure purpose would revisit the place for just once or twice more, unlike resort destinations where various resorts each offering a different experience where the visitors can enjoy their stay for longer time to rest and relax.

For seasoned business travellers, they have already enjoyed touring the city in the past hence they are no longer big spenders when they stay in the city. And the trend of rising prices at restaurants and shops targeting tourists and foreign business people is also a big turn off for the visitors as there are many alternative locations in Asia where they can better spend their money.

So I think it is reasonable to say that it can be difficult for Singapore to grow its tourist industry into something more significant for its economy.

Internet Era

For many years, Singapore has been very focus in ensuing their citizens being better educated to deal with the industrial world back in the last century. However, since the beginning of this century, the internet has completely upset the balance of the world economy. This wave of technology shock has affected economy worldwide. One thing that really messed up the world is that the education of people around the world were all pointing to the wrong direction since the internet revolution has started. Nothing in the education of young people are preparing them for the new economy.

This problem affects Singapore much more than the other countries in Asia. Even though in college level education, younger generations can be trained with more computer knowledge, but that implies that at least 2 generations of young workers in Singapore need training before they can be redirected into the knowledge based economy or Singapore will lose all the advantage they used to have against the rest of the countries in Asia.

More importantly, the education up to high school level has to put a lot more emphasis on computer skills which was never the focus. Without reform, the education system will continue to produce workers without the skill sets necessary to thrive in the new economy era. This is no difference from other high tech places like Hong Kong, Korea or Japan. Just that Singapore economy has always been driven by one or two main industries while other Asian countries have better diversifications. Thus, being able to stay at the forefront of knowledge based economy is more important for Singapore than other places.

Tough Time Ahead

In this modern time, as people demand more and more from their government while in reality the government is really nothing more than a construct to manage a place, Singapore is really dealing with a serious identity crisis at this point. Singapore, being a special sovereign entity situated at the centre of South East Asia, has enjoyed great economic growth and endured tough times while bouncing back gracefully every time.

Yet, as the world is entering this crossroad all together this time around, Singapore is facing a very tough time ahead as its government leading approach to its society and economy is facing its biggest challenge ever. To thrive into the future, Singapore has to figure out not only what lies ahead but also resolutions that has to be put in place as soon as possible before the tides turning.

Feature Photo: Singapore Changi Airport

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Hong Kong is Fading Away

traffic on junction in city Second week into my busy schedule meeting people here in Hong Kong, one thing that I have to deal with consistently is the time spent in between. Due to the packed environment and crazy traffic condition in Hong Kong, traffic jam is the norm. Hence much time is wasted on travel. In fact, I think I spend more time traveling in Hong Kong than in many other major cities I have been to. Killing time in leisure seems like a luxury in Hong Kong when you see all these people walking in very fast pace with serious look in many of them.

Historical Importance vs. Reality

Many Hong Kong people are very proud of their past accomplishments. As the richest city for Chinese people back in 1970s to 1990s, it is approximated that Hong Kong’s GDP was as much as one third of the whole China back then. It was really amazing how such a tiny city, due to historical reasons, being placed into the global trade route, could shine so bright. But this is exactly the problem with the people in Hong Kong – many of them do not realize the special conditions allowing the city to grow so much has been chipped away over time.

As of year 2015, Hong Kong’s GDP is less than 3% of China’s GDP. Its relative importance to the growth of China and its future is long gone. Within a decade or two, as China continue its push to modernize the rest of its coastal cities, Hong Kong will likely be less than 1% of China’s GDP. In other words, Hong Kong is going through what many Western countries were going through over the past 20 years – normalization of its economy, living standard and social structure while the developing countries like China were playing catch up.

A Highly Inefficient Place

One thing that stands out in Hong Kong is that majority of the workforce are being rushed to get things done. Everything are being pushed for completion as quickly as possible. By results, however, they are just making more mistakes and time wasted on these mistakes. At the end of the day, nothing is really accomplished efficiently this way.

Another clear problem with the city is the less than desirable education cost which reduces the competitiveness of the city over the years. Education cost is so high that starting from very young age, parents are forced to pay so much of their income just to get inferior education for their children. The high stress environment is also making the younger generation less capable to think creatively or critically. Highest priority in life for the young adults is how to get by with a better paid job.

Fading Away

Hong Kong can keep on fighting the trend of being normalized into just another major city of China but it is not likely to succeed. Hong Kong got its chance and became a very important city of the world. It has a good run just like other famous cities in the world. As the original conditions disappear, the inevitable cannot be avoided hence Hong Kong will never have the same level of importance for being the sole connection between China and the rest of the world.

For the people in Hong Kong, especially the younger generations, there are many great opportunities out there for them but they have to better equip themselves with more knowledge and analytical skills. The internet actually liberated all the knowledge human kind has accumulated so far. Unluckily, English has been a very weak spot in Hong Kong’s education system, making it very difficult for the young people there to learn from the net by themselves.

For instance, the overall investment knowledge in Hong Kong is so bad that even young professionals do not know much about financial markets. Those who are interested in the financial markets are often misled by the financial media in Hong Kong.

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Is 2016 Year of Surprises

baby_surprisedWhat a way for the year to start. In Asia, China acted decisively to devalue its currency and then speculators panic selling stocks in response. In Europe, EU looking to establish its own army while talks of Britain leaving EU getting a lot of attention. In America, US dollar continues to strengthen and Canadian dollar just made decade long new low against the US dollar. As if the world has chosen this year to make drastic changes in everything.

Is it all unexpected though that we are getting all these so-called news shocks within a week? I don’t think so.

All the events mentioned above have been developing since last quarter of 2015 if not earlier. The holiday season simply delayed them all and aligned them to happen right after New Year. Some people already blaming this year for being an unlucky year. Well, I am not sure if luck has anything to do with this. But I know for sure that looking at things this way does not help in resolving the matters on hand.

Case in point – the stock market selloff happening this week. Subscribers to my newsletter all know that I am looking for a selloff and that the target price level is now reached today after Non-Farm Payroll report. It is not that difficult to tell a correction is going to happen. It is the timing and magnitude of the drop that caught people by surprise but they shouldn’t be. All signs are on the wall.

Similar things can be said about Canadian dollar. The crushing of crude oil has killed the economy of the oil producing provinces within the country. That in turn affecting the other provinces. The Canadian dollar getting weaker is just a matter of time.

Media, however, cannot tell people that everything is expected. The need of ever increasing readership means exaggeration is part of their job. No wonder we got all these headlines that this week is the worst ever first week for the US stock market in history.

Keep calm and carry on.