Ryan Pyle Blog: Market Defies Fear of Real Estate Bubble in China

Hello,

I just wanted to blog about some new work that I've produced with the New York Times. David Barboza, one of my frequent collaborators wrote a great story about China's property bubble. To say the property market is hot is a vast understatement.

See below for the entire story.

Copywrite: New York Times
Original Link: CLICK HERE
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Market Defies Fear of Real Estate Bubble in China
By DAVID BARBOZA

SHANGHAI — The spacious duplex comes with crocodile-skin bedposts, hand-carved bronze doors inlaid with Swarovski crystals — and a $45 million price tag.

It is still on the market, but Charles Tong, the developer of Tomson Riviera, a luxury riverfront complex in the heart of the financial district here, says he is having no trouble finding takers for similarly priced units.

“We’re selling three to four apartments every month,” said Mr. Tong, seated in a white Versace easy chair. “Now, people here want something more luxurious; they’d like a new lifestyle.”

Everyone agrees China is in the middle of a spectacular real estate boom. The question is whether it is in the middle of a rapidly growing real estate bubble.

When other recent booms collapsed — in the United States, for instance — they depressed entire economies. In China’s case, a bursting bubble could affect much of the world. China is the fastest-growing large economy and, so far, a main engine pulling the world out of recession.

Beijing is clearly concerned. Authorities have recently moved to rein in the easy credit that has helped finance China’s hyperdevelopment, including making it more difficult for home buyers to take out a second mortgage.

Last year, a record $560 billion of residential property was sold in China, an increase of 80 percent from the year before, according to government statistics that are widely considered reliable. And with prices soaring, developers are scrambling to build more mansions, villas and high-rise apartments with names like Rich Gate, Park Avenue and Palais de Fortune.

Signs of exuberance are everywhere. An investor in Shanghai recently bought 54 apartments in a single day; a villa sold for $30 million last year; and in December a consortium of developers paid more than $3.5 billion for a huge tract of land in Guangzhou, one of the highest prices paid for any property, anywhere. In the city of Tianjin, in north China, developers have created a $3 billion “floating city,” a series of islands built on a natural reservoir, featuring villas, shopping malls, a water amusement park and what they say will be the world’s largest indoor ski resort.

“This is wild,” said Andy Xie, a former Morgan Stanley economist who is now an independent analyst. “By all the traditional measures, like rental yield, this is a bubble.”

Speculators are snapping up properties on the expectation that prices will continue to rise, as prices have nearly every year for more than a decade. And powerful developers are working with local governments to transform old cities into urban dreamscapes.

But Shanghai, China’s wealthiest and most dazzling city, is the epicenter of the boom. Prices here have risen more than 150 percent since 2003, pushing the price of a typical 1,100-square-foot apartment up to $200,000, according to real estate experts. (Shanghai residents typically earn less than $5,000 a year.)

A buying frenzy has gripped the city, leading to billion-dollar land auctions and long waiting lists.

“The speed you buy a house here is faster than you buy vegetables,” said Andy Xiang, an advertising executive who recently put down a large cash down payment to get the right to pay $1.3 million for apartment in the city’s exclusive Xintiandi area.

Few residences, though, are as upscale as Tomson Riviera, which consists of four golden-hued towers overlooking the Huangpu River, with a central garden mapped out in the shape of a dragon. The apartment complex’s entrance has original artworks by Salvador Dalí and well-known Chinese artists. The apartments, a few of which have been decorated by Armani and Fendi, as well as Versace, lease for $7,000 to $17,000 a month — to high-level executives from companies like General Motors.

Those who buy an apartment here tend to be extremely wealthy, like Liu Yiqian, an eccentric Shanghai entrepreneur whom Forbes magazine says is worth about $540 million.

Mr. Liu, 47, got his start driving a taxicab in Shanghai but eventually made a fortune investing in the stock market. In an interview this week, he admitted to owning “hundreds” of apartments in Shanghai (he said he could not remember exactly how many), including a 6,000-square-foot apartment in Tomson Riviera, which he bought in 2008 for about $11.5 million.

“I invest in properties,” Mr. Liu said, noting that he also collects art, antiques and jade. “I think in Shanghai in five to seven years the real estate prices will be even higher.”

As they try to modulate the market, local and central governments here are walking a thin line. Land sales were a major source of government revenue, raising about $234 billion last year, an amount equal to over a third of the cost of China’s half-trillion-dollar stimulus program.

Whether the country is in the middle of a bubble has become the subject of a debate. Some economists, like Nicholas R. Lardy at the Peterson Institute for International Economics in Washington, say the housing boom is being fueled by a huge urbanization push that is creating premium-priced houses.

Other analysts say prices are being propped up by greedy developers and government policies that are making housing increasingly unaffordable for the masses migrating to big cities.

Despite the fear of a bubble here, Mr. Tong, 38, said his prices were just right, particularly because of so much hidden wealth in China. The publicly listed company is controlled by his family.

“I have a friend,” he said. “She makes maternity clothes. Her company has 20 percent of the world’s market share, and they’re not even a listed company.”

Still, Tomson’s prices are soaring. The most recent apartment sold for about $2,300 a square foot. The average luxury apartment in Manhattan sold for just under $1,900 a square foot in the fourth quarter of 2009, according to Prudential Douglas Elliman real estate.

Indeed, for the price of a Tomson apartment in Shanghai, a buyer could easily purchase a 6,000- square-foot home in Los Angeles built by Frank Lloyd Wright and now for sale ($10.5 million), or a 52-acre site with a 22-room residence in New Canaan, Conn. ($24 million).

But a sales agent at Tomson Riviera says this the future financial capital of the world, not the dying one.

“Look at this bronze door,” said Wang Yaodong. “That costs $50,000! Look at these Gaggenau appliances. They were made in Germany.” The glasses were imported from Belgium, the Jacuzzi from Italy. And don’t worry about losing your key, he said, “This lock can read the palm of your hand.”
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Ryan Pyle
Photographer
ryan@ryanpyle.com
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com
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Ryan Pyle Blog: Forced Evictions & Beatings

Hello.

This is an a story that happens entirely too often, but it doesn't always have a chance to make the news. Apparently, according to the New York Times, thugs were sent in to "remove by force" residents, many of which are artists, that were set to be evicted from their homes in northern Beijing. After getting beaten up they were all arrested in an attempt, the following day, to march in to central Beijing in protest. Once again, dignity is stamped on in the face of development. The full article is below, but first a bit of commentary.

In China, money talks. And it never matters which side of the money question you are on. For example, decades ago artists were lured out of the city center to the remote sections of northern Beijing to create "Artist Villages". These villages were the breeding grounds in the 1980s for many of China's most successful and influential artists as the rent was cheap and there was a lot of collective creativity and collaboration. But more importantly the artists were given long term leases (money talking), some up to 30 years, on their properties and some invested huge amounts to create their dream studios and galleries. To anyone that has been out there, and I have been several times to several of the more remote artist districts, the region has been transformed by the artists. Now, however, the money is talking again.

The Government loves to sell land; especially in the midst of insane property valuations. The Government owns the land, and apparently property rights, leases, contract rights and legal rights don't mean a damn thing. So if the government can offload a huge parcel of land to a property developer for a large sum of money, whether people are still living there or not, they'll do it in a heartbeat. Development, and revenue creation, at all costs.

So this artist village has been sold off to a big property developer who wants to raze the whole place and put up more non-desrcript high rise apartments. The problem is the land is inhabited. And instead of paying people compensation to move, the government and their developer buddies often like to use force and intimidation - and why not when you can get away with a media black out and no legal action against you. The problem is, and this is why the foreign media has an important role in China, is that this kind of heavy handed behavior is exactly what many of Beijing's elite officials don't want outsiders to see. They don't want people in the west, who are keen to invest in China, to see that China is still a country of thugs and money hungry developers that don't mind whacking a few skulls to move things along quickly.

In many parts of the country, even in Beijing and Shanghai, business rules are still defined by a system of "village rules". This country has a lot of problems that it doesn't seem to be ready to address; one specifically being that government officials have little or no respect for the rights of the people they are supposed to be working for, that being the average Chinese inhabitant; I wouldn't dare use a term like citizen, as that would imply a certain level of respect and rights. Government leaders need to remember that their sole role in life is not to great wealth for themselves. Holding a position in government is about serving the people, not beating them with pipes so you can get a big bonus from a property developer. China has 1.3 billion people, and they deserve a high level of service. Is that need being met? I'll leave it up to you to decide. But the corruption that exists in China at every level, and this case wreaks of property developer and local official collaboration, is a prime example of how impossible it is to draw the line between where big business stops and the government begins. And the little man will always get stomped out.

I worked on a story about this with TIME magazine back a few years ago where Bamboo farmers lost their land to a bunch of government officials who wanted to build a hotel and karaoke bar on their land. The same thing happened, no notice. No compensation. No settlement. Just sticks, pipes and beatings. The only difference was that the story I worked on was in a remote part of Jiangsu province. Today it is in Beijing. Scary times. Full story is below.

Time Magazine Story: China's Fighting Farmers

Copywrite: New York Times
LINK to Original Story: LINK
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February 24, 2010
Beijing Police Beat Artists Protesting Evictions

By ANDREW JACOBS
BEIJING — Nearly two dozen artists protesting the forced demolition of their homes and studios marched through the ceremonial heart of the capital before the police intervened and prevented them from reaching Tiananmen Square, the artists said Tuesday.

The protesters said they decided to take to the streets on Monday hours after scores of masked men swinging iron rods swarmed over their community on the northern edge of the city, which has been resisting redevelopment.

Wu Yuren, 39, a photographer and installation artist who was among those who were attacked, said six artists were sent to the hospital with minor injuries. He said the attackers, about 100 men wearing white face masks, had been sent by developers who wanted to clear the area for a large-scale residential project.

“They didn’t say a single word,” Mr. Wu said. “They just started beating us.” The police, he added, did not arrive for an hour and then sat in their patrol car until the attackers fled.

Another of those beaten, Satoshi Iwama, said he received five stitches after a blow to the head.

Although protests against forced evictions have become increasingly common in China, the aggrieved rarely succeed in venting their complaints on Chang’an Avenue, the heavily policed artery that passes in front of the Forbidden City, Tiananmen Square and Zhongnanhai, the residential compound of China’s top leaders.

Ai Weiwei, an artist and dissident who joined the demonstration, sent out a spate of Twitter messages detailing the march, which he said made it only about 500 yards before the police intervened.

“It was instinctive,” he said of the decision to protest. “We made a lot of noise, and I think we had a big impact.”

It is unclear whether the protest will force any action against the masked attackers or alter the course of development that threatens at least 10 clusters of studios where artists live and work on the fringes of the city. The clusters, called “artist villages,” house as many as 1,000 painters, sculptors and performance artists.

For two adjacent art districts that were the scene of the early morning protest, known as Zheng Yang and 008, it may be too late. In November, the developer cut off electricity and water, and most of the buildings have already been destroyed.

Xiao Ge, a curator who helped organize a roving performance last month to draw attention to the evictions, said the developers gave most tenants a week to move out.

Many artists are furious because they were lured to the villages with long-term leases — some for nearly 20 years — and encouraged to invest their life savings in renovations. Gao Qiang, a furniture designer who moved to Zheng Yang last August, said he spent almost $12,000 to fix up his studio after he was given a three-year lease. Although he is angry that he will lose most of his investment, he and other artists say they are most concerned about bullying from developers and, at best, the apathy from the authorities.

“It is not an issue of money, it is an issue of dignity,” said Mr. Gao, 38. He added that on Tuesday, the police told the artists that they would provide better security and try to reconnect severed utilities.

The police declined to comment.

The fight over the future of Beijing’s artist villages coincides with soaring real estate values and ugly scuffles over land expropriation, several of which have led to the suicides of those facing eviction. Widely publicized in the media, the suicides have helped prompt the government to consider modifying the nation’s urban redevelopment regulations.

Even if the proposed reforms, which would provide market-rate compensation for property owners and outlaw coercive evictions, are adopted, it is unlikely that they will help Beijing’s artists. Many artists live in officially designated rural areas, which are not covered by the measures.

Berenice Angremy, who has been a curator and art consultant in Beijing for the past eight years, said the repeated dislocations had been devastating to artists, both financially and psychologically.

“The government is trying to make Beijing a great cultural city, but without artists, it’s not going to happen,” she said.
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Ryan Pyle
Photographer
ryan@ryanpyle.com
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com
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Ryan Pyle Blog: Moving Up the Value Chain

Hello.

According to the Economist, a few weeks back, China is moving up the Intellectual Property value chain. The article in question discussed patents and how Chinese companies have been rapidly increasing their applications for patents both in China and in western countries where they operate.

There were a few high profile cases of late where foreign companies had to pay out significant sums to Chinese companies for patent violations in China. It is a relatively new and novel idea in China that if you create something, and then someone copies or uses it for their own profit, that they'll need to pay you. In a country where everything is copied instantly, there has been little incentive for people to create anything unique; especially when a quick and comparatively easy profit can be made by copying someone else's work.

This stage we are in at the moment is, by all means, an education process for China. Patents were not officially allowed in China until the mid-1980s and even then they weren't ever enforced until 2006. And they still have a long way to go. But if there is a corner out there, they are beginning to turn it.

For years us China watching folks have talked about China's need to beef up IP law to save the domestic music, movie and software industries; the three industries that suffer the most from IP infringement. Stricter IP laws will add value to the production of higher end products; so that China can move away from the low-tech manufacturing that migrates from poor country to poor country in search of low production costs; today it's China. Tomorrow it's Vietnam and Bangladesh.

Does that mean that China will completely move away from low end jobs, such as the image above of a young man working in a toy factory in Dongguan, China? Absolutely not. There are still millions of people in China willing to work for next to nothing, and that will never change. In a country of 1.3 billion people there will always be people to do low paying jobs. In saying that, China will slowly over time become known for not only the label "Made in China" on your sneakers or tee shirts, but also for that same label on your computers, servers, routers, telecom equipment, mobile phones and electric cars; and the companies making these products will not just be western firms exploiting low production costs in China, they will be Chinese companies producing domestically and exporting to global markets. Mark my words, I am an optimist, China will go up market in a very big way. Companies like Lenovo (Computers) and Huawei (Telecom Equipment) are setting the pace already. And with more IP law the future could look very bright indeed for innovative and creative individuals and firms in China.

As an aside, one question that hasn't really been answered is how much as the lack of IP protection cost China? Well, that is a riddle I would love to see someone, much smarter than me, solve. The government always stands by the official line that you have to copy before you can learn. But it is clear that this prolonged period of copying has stunted intellectual, artistic and innovative development inside the country. Why write a book, that is widely read and enjoyed, if you can't feed your family from the sales because it's been copied and widely distributed? Why write a song, if it will be enjoyed by millions, and you still can't afford to pay your children's school fee's? I'm not saying that we create only for profit, but creation needs to, in this modern day and age, cover our basic costs; especially if you have a family or other dependants to provide for. This is simply a fact of life.

China's laid back attitude towards IP has annoyed the more mature economies in Europe and North America. But as the Economist article points out, in the 18th century a very young United States of America copied just about everything they could get their hands on, mainly machines from England and Germany, in an effort to industrialize and become a manufacturing powerhouse. Everyone has to start somewhere, it's just rough luck for China that we live in a world of instant information and communication; it makes these growing pains much more public, painful and embarrassing.

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Ryan Pyle
Photographer
ryan@ryanpyle.com
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com
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