Wednesday, March 19, 2014

A Chinese shaggy dog story

Bless Zero Hedge for being counted on for seeing the glass as half empty. Today it breathlessly reported that The Music Just Ended: "Wealthy" Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash:
Cash-strapped Chinese are scrambling to sell their luxury homes in Hong Kong, and some are knocking up to a fifth off the price for a quick sale, as a liquidity crunch looms on the mainland.
ZH went on to tell us about the terrible cash problems that Mainland Chinese buyers were facing:
Wealthy Chinese were blamed for pushing up property prices in the former British territory, where they accounted for 43 percent of new luxury home sales in the third quarter of 2012, before a tax hike on foreign buyers was announced.

The rush to sell coincides with a forecast 10 percent drop in property prices this year as the tax increase and rising borrowing costs cool demand. At the same time, credit conditions in China have tightened. Earlier this week, the looming bankruptcy of a Chinese property developer owing 3.5 billion yuan ($565.25 million) heightened concerns that financial risk was spreading.

"Some of the mainland sellers have liquidity issues - say, their companies in China have some difficulties - so they sold the houses to get cash," said Norton Ng, account manager at a Centaline Property real estate office close to the China border, where luxury houses costing up to HK$30 million ($3.9 million) have been popular with mainland buyers.
...blah, blah, blah...

The $2 million dog
As an antidote to ZH's all-disaster-all-the-time tone, CNBC reported that someone in China had bought a puppy for just under USD 2 million:
A golden-haired Tibetan mastiff puppy has reportedly been sold for a whopping $2 million in China, potentially making it the world's most expensive dog.

The pup was sold at a premium pet fair in the eastern province of Zhejiang on Tuesday, fetching 12 million yuan ($1.95 million), according to AFP, which cites a report in Chinese newspaper Qianjiang Evening News.
The £1 million dog (circa 2011)

Observant readers will recall the news story in March 2011 which reported the then eye-popping price of £1 million for a golden-haired Tibetan mastiff puppy:
"He is a perfect specimen," said Mr Lu, who runs the Tibetan Mastiff Garden in Laoshan, near the eastern Chinese city of Qingdao. "He has excellent genes and will be a good breeding dog. When I started in this business, ten years ago, I never thought we would see such a price."

Mr Lu said the details of the sale were confidential, but revealed that the buyer, who paid 10 million yuan (£945,000), was a multi-millionaire coal baron from the north of China.
Why so much for a dog? That's because the male puppy was a good investment - for breeding stock:
"I could see he loved the puppy, or I would not have sold him," he added. "The buyer told me he thought he was a good investment. As a male dog, he can be hired out to other breeders for as much as 100,000 yuan a shot. He could recoup his money in just a couple of years."
I am glad to see top quality dogs are going up in value, which is an indication of rising affluence in China. £1 million in March 2011 was equivalent to roughly USD 1.6 million at the time. Now a top dog fetches USD 2 million.

This shaggy dog story begs the question: If these kinds of prices are being paid for dogs, is China truly crashing from a liquidity crunch?

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). The opinions and any recommendations expressed in the blog are those of the author and do not reflect the opinions and recommendations of Qwest. Qwest reviews Mr. Hui’s blog to ensure it is connected with Mr. Hui’s obligation to deal fairly, honestly and in good faith with the blog’s readers.”

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WimpyInvestor said...

Please monitor Vancouver real estate for us ... if you see any signs of forced selling to raise cash, please do report here.

Pretty quiet in San Francisco Bay Area ... immigration lawyers say another (bigger) wave of EB-5 investors from China coming ... this time with even more money ... final rush to the exits?

Knight-trader said...

It may be un-moored from reality but Zero Hedge fills a large place in the online financial opinion market. I have a friend who's career isn't going well and who talks about ZH all the time. I think it soothes his jealousy to think of the imminent collapse of those doing better than him.

Cam Hui, CFA said...

Vancouver real estate prices have been relatively steady, but I will keep an eye on it and report back.