Greg Guenthner

You’ve seen the ghost cities before.

They stretch across the outskirts of dozens of major urban areas, criss-crossed by empty highways. The rows of modern skyscraper apartments are all sold to absent investors. There’s little doubt these scenes create compelling television…

But beyond, the gaudy, empty cities, China is now facing another property-related problem: housing slaves.

Middle-class workers in China’s major cities are reportedly shelling out upwards of 70% of their salaries for mortgage payments as they scramble to buy property in the face of rising prices. According to Bloomberg, the Chinese media has started to call them ‘fang nu,’ or housing slaves, “a reference to the lifetime of work needed to pay off their debts.”

Then there’s the investor class. Nouveau riche Chinese investors have gobbled up properties despite attempts by the government to put a lid on the red-hot market. Just this week, China instituted large tax increases on home sellers. The government is also calling on local agencies to institute price controls.

Yet no matter how much the government attempts to crack down on the housing market, it cannot suppress human emotions…

China is showing signs that it is entering the final, blow-off stages of its real estate bubble. Analysts and developers are sounding the alarm–but it cannot deter euphoric investors who have never seen real estate values dramatically tumble since the government changed property ownership rules 15 years ago…

Advance notice of this impending drop was on full display yesterday. The Shanghai Stock Exchange Property Index cratered nearly 10%. Stateside, the iShares Trust FTSE China 25 Index Fund and the SPDR S&P China ETF both dropped. All are recovering slightly today–but I would expect continued volatility moving forward.

If you’re betting on China through any of these positions, it’s time to pound sand. The sheer scale of China’s property binge and the telltale emotional topping signs are emerging everywhere you look. When it really begins to sour, the shockwaves could make our little experience with a runaway housing bubble here in the States appear mundane…

Greg Guenthner
for The Daily Reckoning

Greg Guenthner

Greg Guenthner, CMT, is the editor of the Daily Reckoning’s Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

  • Rusty Fish

    Once, you earned 3 gm per month to afford a 150 gm spacious comfortable
    shelter . Perhaps, property has soared to 500 gm and earning has only achieved
    a fold of inflation. The gap is widening inline with ticking of the debt clock, worldwide.
    In some part of the world, housing repayment carries forward to the next
    generation. So, that makes it a compulsory inheritance, the parents being slaves
    and their offspring automatically qualify slavery.

  • Pingback: Trackback

  • Pingback: Trackback

Recent Articles

5 Min. Forecast
How to Profit On the Back of an “Activist Investor”

Dave Gonigam

Since the invention of the "shareholder rights plan" (i.e. the "poison pill"), most companies are relatively immune to hostile takeovers. But according to Dave Gonigam that could all change thanks to one activist investor. And if you're savvy enough, you may just be able to follow his lead for big gains. Read on...


Extra!
Why Americans Shouldn’t Worry About Income Inequality

Jim Mosquera

As the markets have continued to rally over the last several years, more and more people have touted the problem of "income inequality" in the US. But as Jim Mosquera explains, this perceived problem will likely sort itself out with the arrival of one specific market event. Read on...


One ETF to Play Asymmetric Warfare

Addison Wiggin

Almost one year ago, substation telephone cables were maliciously cut in San Jose, CA. In 20 minutes, 17 transformers were knocked out. A year on, similar threats have cropped up. Today, Addison Wiggin explains why these threats are so serious for the safety of the global economy... and shows you one way to play it...


What Small-Caps are Saying About the Current “Bubble”

Greg Guenthner

The big problem with declaring bubbles is that it really does you no good. Unless you're attempting to measure and time market moves, you're also blowing hot air. But if you keep watch for negative divergences, you have a much better shot at figuring out big market moves than the latest bubble-busters. Greg Guenthner explains...


A Simple Strategy for Investing in the US Energy Boom

Byron King

Too often investments are made in a vacuum. But as Byron King demonstrates, the global economic crash... easy money... and technological advancements are all interdependent. In particular, that connection has changed the investment calculus in the resource market. Read on to learn how...


How Gold Will Respond to Declining Discovery

Henry Bonner

Oil isn't the only resource to experience "peaks." Due to a major contraction in gold exploration over the past few years, the mining sector is no longer mining gold at its replacement rate. In other words, the amount of gold above ground is running out. And according to Henry Bonner, it will get worse before it gets better...