Making Long Term Moves – Buy Overvalued Chinese Real Estate?

In china business by Michael MicheliniLeave a Comment

Marriage life, is a still rather new world for me. A great new chapter in life, don’t get me wrong, I’m a happy man. One of the biggest changes I can say is that it makes you think much more long term. Set down roots, make decisions for next 5 years, 10 years, college education for kids, lifetime.

Kind of overwhelming and mind-blowing. Its like mapping out a huge chunk of your life upfront.

One of the main conversations we have at home is, where are we going to spend the majority of our children’s early years? Will we stay in China, move to USA, move to Southeast Asia, to Europe?

While it is a bit of a mental adventure envisioning all of these locations – China still sticks out to be the main one. I have build most of my “personal brand” around China and Hong Kong. Business is established here, network is here, global network sees me as the “China, Hong Kong guy”.

Sure, I could move and still maintain that. Yet I think it would be harder to keep up on the changes and have a pulse for what is happening.

Anyway, so when we discuss staying in China for the next 10 to 20 years, my wife talks about buying real estate.

That is what Chinese do. Heck, that is the American dream to. To be able to buy your own home, to be able to live life on your own terms. Create a stable environment for your children to grow up in.

Yet, I may have gone along with this – but I keep saying that Chinese real estate is way overpriced.

I’ve always passed up on opportunities to buy real estate, in Hoboken, NJ, Manhattan, Florida. And I sit and watch the prices rise.

A bit frustrating – yet at the same time – if I was a homeowner, I would be less inclined to travel – and surely my life would not be the same as it is now (butterfly affect thought process here).

Shenzhen, China real estate is basically the most expensive in the world. It has doubled in the past year. It is higher than Hong Kong in some districts. It is simply insane.

So, do we wait? Do we suck it up and buy at the top? Do we move?

I don’t want to live my life decisions based on real estate valuations. Rent is also coming up like crazy here, the place we rented in January of this year seems like it would fetch about a 33% premium in today’s market. The place we moved out of, a 40% increase in rent from what we paid to what someone recently rented it for.

My wife keeps telling me Chinese real estate will not come down. The government controls the prices of real estate and they will not let the housing prices come down. That sounds insane, and we have debates that this is not America – that in America it is a free and open market – but we are in China. That we will have to wait until our children have grown up before we can see a drop in real estate prices.

But when it will take a lifetime to have the rental income of a property pay off the price of a home, it just doesn’t make sense. My limited knowledge of real estate investing is to buy a place where the rental income will pay back the place in a reasonable amount of time – like P/E (price to earnings) ratio of stocks.

This is why so many Chinese, and foreigners, leave China. They are tired of paying rent, and cannot afford or reason with themselves to buy such overvalued property.

Our lease is another couple years – so at least we “locked in a reasonable” rate- one that we can at least budget for.

Its a new year coming, so of course wife and I are having these kinds of discussions. It is normal, right?`

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