The fundamental difference between China housing price drop and US is majority of Chinese buy properties with cash or get mortgage with very large deposit like 40%. So the risk of subprime crisis is very low.
Speculation is rampant and a people I know are leveraged on multiple properties, lying to banks to get loans.
The risk of a crisis is very real; even if the risk of default is low, the risk of the marketing seizing up because no one wants to buy at a price sellers are willing to sell at is incredibly real.
Rents in Beijing are pretty cheap now, getting cheaper actually, while housing prices remain rediculously high. Heck, my apartment complex is prime but only about 60% occupied (the other units bought but being held for speculation alone). Something has got to give.
That was true 10 to 15 years ago. It's no longer accurate. China has become a massive accumulator of debt at the consumer level. While it's not as bad as the US subprime situation was, it is bad and getting worse.
Since year 2000, China's household debt has gone from 8% of GDP, to now 40% of GDP as a ratio (the US is 75% by comparison). Mortgage debt has become a common problem in China. At the rate household debt is expanding in China, they'll be up to 60% in four years or so.
You still have to put down a 30% deposit for first home and 60% for a second, which is stark contract to 0% down payment or even borrowed down payment in US.
A main reason people buy properties is the lack of other type of investment. The public in general have no confidence in stock market. Housing is the only thing almost guaranteed to make money. As financial reforms such as allowing investing overseas kicks in, we should see money moving away to housing market.
0% down is very rare in the US among total housing ownership. The average person is required to put down 15%-20%. Even during the bubble it represented a very small portion of all housing and lasted for only a few years.
Home equity is about 55-56% in the US for the entire housing market (owner occupied) and has continued to climb since the lows of the post bubble bust.
That is a very big difference between house-buying patterns in east Asia in general and house-buying patterns in the United States, and has been for a long time. But that didn't help Japan avoid a housing bust, because if builders build on speculation, their debt drags down the economy even if house-buyers don't have comparable levels of debt. Speculative bubbles always leave someone holding debts that they can't pay off when the bubbles burst.
But do Japanese builders build using large loans, surely the historical sense of building houses from your own money would extend to make them fear borrowing more than they can afford to lose.
Well... no bubble is the same, otherwise we'd be able to spot them and avoid them every time, right? If there is a common factor in housing bubbles, it's the extent to which housing moves away from its primary purpose (ie. a roof over a family's heads). In China housing has become a massive source of income for local governments, income for developers, and an investment vehicle for rich people. It has all the signs of being a classic bubble and the only question is how/if the government can deflate it. Also don't forget that a lot of people pay cash because they can't get a mortgage or don't trust the banks, but they still borrow money from friends, family, lending circles or other informal sources - there is often still a wobbly chain of debt behind each purchase.
