Talk of a possible real estate crash in China is a hot topic since the popular investigative news 60 minutes featured an episode about China’s ghost cities. As the title implies, the episode’s message is loud and clear: China could be in a big housing trouble sooner rather than later.
(This is the clip from 60 Minutes)
The go-to guy for Asian bubble local insight — as he seems to be in almost all of China’s bubble news — is Gillem Tulloch, a vast resource of refreshing Asian economic insight. He is the founder and Managing Director of Forensic Asia, an independent research company that operates a highly forensic accounting approach to Asian companies.
One thing I disagree with Mr. Tulloch, though, is his specific time he put forth on when the China’s property bubble will burst: Second Quarter of this year. Now, I have no doubt that China’s bubble may burst in the coming months. But if it doesn’t — if the property bubble somehow, for reasons unknown, sidesteps the decline for another few months or even a year or two — then it’s easier for people sitting on the fence waiting for the bubble to pop to re-take their own feel-good medicine that everything will be OK after all. I’ve seen that happen a year or two before Nevada’s housing market popped. Too many observers were calling specific timelines for the burst to happen, and when it didn’t, emboldened onlookers jumped with more vigor than ever.
There’s too many unknown variables to put a specific timeline on a property crash. But Like Mr. Tulloch, I believe the Chinese housing market is ripe for a steep decline. I also believe China’s housing decline can be a trigger for a financial contagion to spread across Asia’s smaller economies.
Last December I wrote about South East Asia’s pending housing crisis in the form of an open letter to the President of the Philippines. Since then there has been no shortage of news to reignite the debate — on both sides. Yes, we’ve been seeing 60 minutes and other mainstream news talk about China’s bubble. But the other side hasn’t had a shortage of rosy developments: Philippine’s upgrade to investment grade from Fitch Ratings, Blackstone private equity group’s confidence-boosting plans to invest an unprecedented $5 billion in Asian real estate and firm rebuttals of China’s ghost cities.
So what to do? May I suggest a continued pursuit of truth in the name of intellectual honesty. It’s worth the risk to ask tough questions; to probe resurfacing evidence. Ultimately, it’s not about who is right or waiting to prove someone wrong. As I wrote about my piece on the Philippine’s housing bubble, it is the family who ultimately loses when an unexpected crisis hits.
And there are few times in my life where I hope what I’ve presumed is proven false.