Beijing Property Market Plunges
imarketnews.com
imarketnews.com
I have put in offers on a number of buildings in Beijing's Financial Street district[1] and there is literally no space available. There are tons of brand new, A-grade office buildings but they are all owned and less than 20% occupied by China Life, People's Life Insurance Company of China and other monolithic State owned enterprises that let the space sit idle and they leave the lights on all day and all night.
The best office building in Beijing[2], was leasing office space at 300-400RMB/sqm per month less than 12 months ago and now they are turning you away if you offer less than 750RMB/sqm. The wierd thing is, some random domestic Chinese "investment" firm will actually pay that rent and happily move in.
I do believe there is a major correction due, but the government does control the media so its hard to say how hard or soft the landing will be and how much we will hear about it.
[1] http://en.wikipedia.org/wiki/Beijing_Financial_Street
[2] http://en.wikipedia.org/wiki/China_World_Trade_Center_Tower_...
* hence why I am posting anonymously.
(Anyone have recent numbers on the price of office space in Manhattan?)
You have to take into account taxes, salaries, property prices, the economy and a lot of other things. IMHO
The parent had hard evidence supply seriously exceeded demand.
What do you have in that department?
> People thought oil prices were purely demand driven
> until we found out they were being bid up traders.
You're suggesting that oil prices are high because of a conspiracy? If so - no.
That's a "turtles all the way down" argument.
Prices need to be sustained by demand. Traders may make money via moves on the fluctuation. But buying a lot of oil in order to push the price up is not a business model. You have to store it (expensive), transport it, and then when you come to sell it the price will decline again. Not to mention the risk you incurr by holding it, and the opportunity cost of not using that money to do something else at the time.
An idea that does the rounds regularly is that a conspiracy of evil speculators permanently distort markets. I've never seen a situation where that was true. There may be periods where the market does odd things, and market manipulation does exist, but unless it's a locked-up market (like diamonds) or a true conspiracy of all the players (can't think of an example) it will eventually have to revert to the mean because the traders will start calling bluff.
Usually when you see people blaming speculators it's someone trying to cover up ineptitude or corruption by picking an easy target.
When this kind of talk gets momentum the results can be bad. A common target during collapsing bubbles is short-sellers (people who borrow stock, and sell it, with the promise to re-buy it and give it back to its original owner at another time, possibly tomorrow). Short-sellers contribute to price discovering in markets, and this is a good thing. But during bubbles, people who know about shorting can do well when others are doing badly, so they're an easy target.
US regulators stroked this theme during the economic crisis and introduced measures that limited short-selling for a period. In doing so, they contributed to the crisis because short-sellers provide a lot of the liquidity behind money markets. Cuffing short-sellers removed their liquidity pool from money markets, which was already under strain.
I lived through the California energy crisis and there was no crisis. It was a gigantic manipulation. Videos of energy traders laughing their butts off at grandmothers dying of heatstroke. Oil doesn't need to jump into the hundreds every time someone screams in the Middle East.
Analysts in every profession know the whims of their markets. Some of the movements are reality based, some are based on perceptions. Commodity trading (specifically oil) is highly profitable. It can be hacked by the people who know the ins and outs. They'll never tell you, but it can. Most everything can be hacked in some way. I highly doubt the few who are able to profit from the ignorance of millions will confess that some troubles in the Middle East don't significantly impact the supply chain. Or that the price of oil shouldn't jump as wildly as it does. Or even that the oil price seems to reflect the greed of traders chasing historical highs. Not buying it.
Spikes in oil prices can be caused by panic in an industry. For example, if I ran an airliner maybe I'd seek to lock in fuel prices via forward trades. There's a risk I'd pay a high premium for the period, but I'd judge that as being bettter than the risk that I'd go out of business.
And spikes can be caused by speculators. But my point was that in liquid markets things will revert to a mean that is backed by whatever the real demand is. Pushing prices up by buying and holding oil is not in itself a business model.
I was under the impression that airlines are already always buying fuel via futures regardless for planning purposes.
Why a conspiracy? Traders do not have to collude for a bubble to occur - there's a positive feedback loop at work.
Even if you're convinced that the prices are already far above the sustainable level, it may still be rational to buy - as long as you're convinced that you will sell at the right moment. It's a chicken race. If you sell too early, other traders will beat you by profiting from the last period of growth.
We've been hearing this about copper being stockpiled in China recently. In this case it seems to be not for speculation but due to a loophole in bank lending rules.
Maybe the oil was sitting in underground reservoirs? (i.e. people were extracting it more slowly)
People who speculate on commodities do not actually have to physically keep them. The commodities just change ownership, but not location. Only the final buyer actually picks them up.
Yes, of course. That's why the bubbles burst. But before that, there's a ton of money on top of the real demand, invested only in hope that more people will invest more money in hope that more people will invest... so it goes until there are no more people willing to invest.
> or else the price will drop as traders trade away to avoid delivery.
The delivery is not the limiting factor. The traders just roll forward their contracts long before the actual delivery date.
But let's not pretend they can't have a negative effect on society. People are anticipating water moving onto the commodities market. If water somehow surges, that's not good for the people at the bottom. Super high oil prices are bad for the world economy. It's advantageous for oil market traders but bad for everyone else.
-- unless I'm missing your point, which I very well may be.
If there was no possibility of upside, they would not invest in the first place, meaning that it would be a given that nobody would have access to the resource.
If government was to make a decision to intervene and strip away investors' upside just when they get one, investors will remember this, and be less motivated to invest in that market in the future. The uncertainty about it affects other parts of the system - someone who gets burnt on one product is likely to be jaded about investing in unrelated products in the same jurisdiction.
It's important to look at the system as a whole. Speculators and short-sellers are net-positive on markets. If you take away their upside you'll remove them from the system entirely and everybody loses. It's important that we set rules for the game, and then honour them, except in situations where individuals do something outside of the principle of the rules, such as market manipulation.
Further up, you're repeating a meme seen elsewhere in this thread about oil prices being determined by speculators. I'm not sure how you believe this, because I don't think the evidence leads to that conclusion. The price meanders about but the curve is supported by underlying demand.
It's advantageous for oil market traders but bad
for everyone else.
Higher oil prices are likely to be goood for oil producers, but I don't understand how come to the conclusions you come to about about speculators.
Store what? Commodities are typically traded in futures.
This thread was about speculators pushing prices higher, and I was outlining the only viable way where I saw that they could push prices higher, and then explaining why it didn't make sense as a business model.
No, when they buy a commodity on futures they own that product. It is out of the market at that point. Further trading can't go on on oil that was bought on futures, it's been sold before it was produced.
>This thread was about speculators pushing prices higher, and I was outlining the only viable way where I saw that they could push prices higher
But this can be done via futures as it has been with Gold. There is more than 10 time more gold "owned" by people than actually exists.
It is out of the market at that point.
But this can be done via futures as it has been with
Gold. There is more than 10 time more gold "owned" by
people than actually exists.
With equities, when there's extra fractional-reserve style liquidity in the system due to shorting, you can tell because that info is available in Bloomberg. So if you see that there's more outstanding than exists, you could call bluff on the people with the outstanding positions.
I'm not sure if the same is true with commodity contracts.
Sure, but when they buy the futures those products are off the market. If speculators buy up everything via futures then that will drive prices up and they'll be able to dump it at a profit (well, the ones who get out in time will).
>Do you have a reference for this?
Here is a jumping off point [1]. Oh, and I was wrong. It's 100 to 1, not 10 to 1. From the wall street point of view they didn't even find this fact controversial. In the inquiry they just basically responded with "oh, no it's fine. You just don't understand". Right, never heard you say that before...
[1] http://www.fool.com/investing/general/2010/04/05/is-your-saf...
> If speculators buy up everything via futures then that
> will drive prices up and they'll be able to dump it at
> a profit (well, the ones who get out in time will).
> Here is a jumping off point [1].
Ah, I apparently missed the part where this was suggested as a long term thing. In that case, you're right. This isn't a method for long term price manipulation.
>Thanks. ETFs acting on a fractional-reserve basis - interesting topic. That's different to futures though. I don't buy the ratios, either.
The info came from a Wall street exec who said that the ratios were easily 100:1, perhaps more but not to worry because blah blah, you can't understand, blah blah, gold futures, etc. I didn't glean much info from it because he didn't seem all that interested in giving much.
http://www.reuters.com/article/2011/04/14/us-china-property-...
a) real (government-issued numbers are one thing, reality is another);
b) driven by the policies (or just the bubble bursting);
c) permanent. It may be a spike caused by the timing of a measure, or a financing roll-over, or whatever.
The problem with bubbles is there's no staying still with them. It's exponential growth or .. exponential decline.
My guess is they'll make a desperate effort to "reflate" things to avoid that scary exponential decline part. We'll see what happens.
i know for fact that the government's recent policies have played a big factor in this drop in prices because they now limit people from buying a 3rd house and have finally decided to add property tax.
hopefully this trend will keep up--buying opportunity!
That said, no doubt there are declines to come in the Chinese property market.
http://www.economicsjunkie.com/beijing-property-prices-plung...
It's possible that there are significant seasonal fluctuations in the market.
That said, the three-month average is still significantly negative: "Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December". And word on the street is that it's getting a lot harder to sell property.
I'd be interested to see a graph with average housing price data stretching back for the past few years.
> That said, no doubt there are declines to come in the
> Chinese property market.
You have no doubt - have you taken a position in order to profit from the certainty? If not - is it possible you have doubts?
This is something that the Chinese government wouldn't mind too much either because the rise in commodity prices beyond a certain point (and we're getting pretty close) will cause political disruptions- which is the absolute last thing that the government will accept.
There was a confluence of factors that drove the unrest these past few months in the middle east, but one of the biggest was the sharp increase in commodity prices, especially food and basic supplies.
That's why hedge funds outperform on average.
'Normal' Western financial doctrine doesn't apply in China's mercantilist 'market' (in quotes, because it's sufficiently different from what is considered a 'market' in the West that one can wonder if they're comparable).
Australian housing might have jumped the shark already - there's been lots of noise about this over the last couple of weeks. http://www.google.co.uk/search?q=australian+housing+market&#...