For those who claim there is not property bubble in China because of strong demand, let’s take a look a home prices to wages starting with a simple question: How long does it take you to buy this home?

In the traffic congested city streets, an advertiser was busy handing out flyers for the newly constructed condos. “Beautiful homes, starting at 29,800 yuan per square meters”, one flyer ended up in the hands of a cab driver who was waiting in traffic. He looked at the flyer and thought “It takes 125 years in order to buy this home”.

A young man got into the cab and picked up the flyer on his way to work. Up in the elevator, punched his time card at exactly 9 am, he rushed into his cubical to start his day of work. Then he read the flyer and thought “It takes 87 years to buy this home.” Foaming at the mouth, he threw the ad into the trashcan.

A cleaning worker lady at this company picked up the trashcan and also saw the ad. “It takes 255 years to buy this home”, she broke into tears.

While the homes are still being constructed, a construction migrant worker of the homes picked up the ad. Looking at it, he thought,“It takes 514 years to buy this home”, blood dripped down under his helmet. Buried in this thought while working on the high rise, he slipped and felt from the building…

A home that costs 29,800 yuan per square meters triggered different reactions with people of different social classes in China. What (or how long) does it take to buy a home? Cab driver needs 125 years, white collar worker needs 87 years, cleaning worker needs 225 years and the construction migrant worker who actually builds the homes needs 541 years. But the big boss only needs 5 days, and the mistress he keeps only needs “a nudge”.

The idea that strong demand proves there is no property bubble is nonsensical.

There is always demand at the peak expansion of a bubble. There was strong demand for Florida condos in 2005. Indeed demand was so strong people were entering lotteries and standing in line overnight for the right to buy one. Demand was so strong prices were going up every day.

Instead, look at price vs. wages and price vs. the cost to rent. Certainly price vs. wages is astronomically out of line.

Here are a few more links to recap the situation:

June 25, 2010: Gold-Diggers in China say “Show me the House” – No House? No Car? … No Marriage

June 15, 2010: Stephen Roach says China’s Housing Boom is Not a Bubble; I say “Nonsense”

April 3, 2010: Email from a Chinese on China’s Real Estate Bubble

The bubble in property values in China is immense by any rational measure.

Mike “Mish” Shedlock
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