This is part two following the last article Is the Real Estate Cooling Down?
I attended a conference on Investment in 2005 today. To be honest, I have very few investment and financial knowledge and I never care too much on the financial numbers such as the government debt and raise in gold price. I was surprised to see so many people concern these numbers so much.
One of the argument was about the trend of real estate price. I asked the question about the real estate bubble of Hong Kong and Hainai and asked about their compare between Shanghai’s situation and other real estate crashes in the world. The host answered my question. I found it reasonable.
Regarding the crash in Hainan, it was not an economy crash. It was purely cheating. No houses were built after the real estate developer got the money. They spent it elsewhere.
The biggest difference between Shanghai and Hong Kong is, Shanghai is in a closed economy. Renminbi is not free trading currency. You cannot exchange Renminbi to any free trading currencies, like USD or Canada Dollar. That means, people in China cannot invest in investment with higher return. So people have to invest locally.
People have been very disappointed in the stock market in Shanghai or Shenzhen. Huge amount of money goes out of the stock market. There are very few investment channels for the capital, so real estate has to accommodate the money. The money comes not only from people in Shanghai, it comes from all across the country. The number is a strong indicator that 40% of high-end properties in Shanghai Real Estate market comes from outside Shanghai.
So the conclusion is, the real estate price will keep raising until Renminbi becomes a free trading currency. At that time, money will flow away.
Disclaimer: It is just one of the opinion I heard. It does not represent my point of view.