Wall Street Financial Truth

Chapter 33 How the Common People Protect Their Wealth (3)
More importantly, it seems feasible for one or a few people to "use tomorrow's money to realize today's dream", because they can still use tomorrow's money to buy a house at today's price.However, if most people are using tomorrow's money, then today's house price will no longer be today's house price, but will become tomorrow's house price.Everyone is using tomorrow's money to buy tomorrow's house price, or even the day after tomorrow's house price, plus interest factors.If the bursting of the bubble affects the real economy and causes the unemployment rate to rise, the money will be gone tomorrow, and the housing market will fall. This is the case in the United States today.

In recent years, in the United States, every family buys a house loan, buys a car loan, and even buys a TV or mattress that costs hundreds of dollars. Almost all Americans pay their bills by check as soon as they get their salary. .Every month, forty or fifty bills are paid in installments. CNN conducted a survey and found that the middle class in the United States is only three months away from the poor.That is to say, once they are fired, after three months, after the unemployment benefits are exhausted, those bills cannot be paid, and middle-class workers can only declare bankruptcy, relying on government relief, and immediately become poor.

It can be said that "the sky is unpredictable, and people have misfortunes and blessings." It is unreliable to use "tomorrow's money", because tomorrow's money may not be there.When you borrow tomorrow's money to buy a house at the price of tomorrow or even the day after tomorrow, once your economy is out of order, then tomorrow's money can only fulfill tomorrow's nightmare.In today's United States, more than 1200 million people have set an "example" during this financial crisis, and more such nightmares will continue to emerge.

Chinese people must be vigilant!Don't look at the Americans who are living a chic life now, but they must not "fake things"!

6. Who decides the house price?

A few years ago, a netizen left a message on my Weibo saying that the stock market kept falling and I dare not enter it, and the risk of gold and silver is too great to be afraid of being trapped. The risk is the least, so he also participated in the whirlwind of personal investment in real estate in Shenyang where he is located. Like many people, he took out the money deposited in the bank and lent it to local real estate developers to charge high interest rates.He also said that according to the latest data released at the time, house prices in Shenyang rose by 5% in May compared to April, so he should call it "investment" in doing so.

At that time, although the country issued a series of policies in succession, the purpose of which was to crack down on speculation in real estate, but China's housing prices were stronger than "pigs". The more the government regulates housing prices, the hotter the phenomenon of real estate speculation.There is such a hot post about real estate speculation circulating on Weibo:

The result of ten years of real estate speculation by Chinese people, there is a joke that goes: Bikes go in, Mercedes-Benz comes out; bare butts go in, wearing Pierre Cardin comes out; ;Earthworms go in, boa constrictors come out; drag a rope in, pull the Tibetan mastiff out...

Kenichi Ohmae, who accurately predicted the bubble in Japan’s economy, said a few years ago that the biggest problem in China’s economy is the real estate bubble. There are about 8000 million units that are not bought for self-occupation, but are used for speculation. It has reached 80 times the annual income, which is unprecedented in the economic history of various countries.In order to avoid repeating Japan's mistakes, there is no better option than blowing the bubble as soon as possible.

With the advent of 2012, China's housing price bubble can no longer last.A few months ago, the "real estate crash timetable" circulated on the Internet showed that the trend of China's real estate was quite similar to that before the Japanese crash in 1991.The Ministry of Land and Resources has finally admitted that the residential markets in first-tier cities such as Beijing, Shanghai, and Shenzhen have experienced serious bubbles and are expanding to second-tier cities.

So how much will China's house prices fall?Economist Mao Yushi said that housing prices will fall by half.

As we all know, the price of any commodity is determined by supply and demand. Supply is the denominator, and demand is the numerator. When the numerator is much larger than the denominator, the price will rise, and vice versa.When a commodity blows bubbles, there is no highest but higher.Because before the bubble burst, people heard stories about making money and getting rich.For example, in China's housing market in the past 10 years, everyone who speculates in real estate has made money, so everyone wants to buy a house. Those who have a house want to buy a second or third house; Destiny has to get on this train to get rich.As a result, the 'demand' increases infinitely. When the 'supply' is relatively unchanged, if you want to buy it, you have to pay a higher price, and the house price will naturally rise all the way...The greed in human nature is transformed into the so-called " Rigid demand".

But can such "rigid demand" ensure that China's housing prices do not fall?
From a financial point of view, no matter how valuable a product is, it depends on the price you buy it at. Buying it at a reasonable price will be worth more than the price, and play a role in maintaining and increasing value.Once you buy beyond a reasonable price, you enter a zero-sum game of speculative hype.Obviously, in the "rigid demand" for Chinese houses, the "demand" brought by speculation is increasing, which is the bubble above the reasonable price.And from the astonishing case of "students buying 680 houses in Dongguan for speculation", it can be seen that China's real estate bubble is extremely alarming!

However, in the financial history of ancient and modern China and foreign countries, just like gravity, as long as it is a bubble, it will eventually end in bursting.Because every bubble has a characteristic, its price either continues to rise, or suddenly falls, it does not matter "soft landing" (no rise or fall), just like "entertainment to death", the bubble always rises until it falls and bursts - the price Once it stops rising, speculators will have no profit, and they will immediately abandon the bubble commodity, which will cause the price to fall.

At that time, timidity and fear in human nature will prevail.At this time, the price is not the lowest, only lower.Take the house as an example, the owners want to sell it quickly while the price is high, for fear that the price will fall further.If the price falls, it will be difficult to go up again. Therefore, as long as the price rises slightly, those who have been locked up will be eager to unwind and continue to sell, while those who want to buy a house will wait and see, forming a phenomenon of oversupply, and the price will naturally go down all the way. , For example, Japanese housing prices plummeted by 90% all the way back then.

Another example is the Nasdaq index after the Internet bubble burst. After falling from more than 5 points to more than 4 points, when it rose slightly to 3 points, people who entered the market at 8 points before Fear, they immediately unwind and sell at this high point.As a result, the stock market continued to fall.After falling below 4 points, it rose slightly to more than 4 points, and those who entered the market at more than 3 points before were out of fear and sold at this "high point", thus entering a downward trajectory , the lower the price, the fewer people dare to take orders, "supply exceeds demand", so it is such a vicious circle, it has fallen to more than 3 points, and finally stopped when it fell to 3 points...

And China's real estate market is likely to be like the Nasdaq index. When it goes up, people will flock to it driven by greed; once the favorable price goes down, people will be controlled by fear, and the birds will scatter. This kind of drama is in A shares It has already been staged once.

You may want to ask, since it has long been said that there is a bubble in domestic housing prices, why are housing prices still rising?I have been asked this question countless times, and every time I answer: "You have to ask yourself this question. In fact, the pricing power of the house is in your hands."

how do I say this?

Houses, like other commodities, have their own reasonable price (intrinsic value).The most commonly used yardstick in the world is the rent-to-sales ratio. Once the ratio of house price to monthly rent exceeds 160 times, the house price is overestimated.Due to the special situation in China (for example, no real estate tax has been levied), the reasonable rent-to-sale ratio can be as high as 200 times.

Once the rent-to-sale ratio exceeds 200 times, the house price will rise again, in fact, because the final buyer is willing to pay that price.At this time, the house is like an antique. It is difficult to say how much an antique is worth. In the end, it is worth as much as the buyer is willing to pay.Like a few days ago, the Qianlong official kiln vase auctioned in London was estimated by experts at up to 180 million pounds, but it was finally sold for more than 5 million yuan, which is worth more than 5 million yuan!
The same is true for houses. Many people blame the soaring housing prices in China on the high land prices, the high profits of real estate developers, and the inflated housing prices by real estate speculators.Of course, these factors do exist, but it is useless to blame anyone.If there is no buyer of last resort at all costs, they will not be able to fry no matter how much they try.For example, if the final buyer is only willing to bid 100 million, if the price exceeds 100 million, if you don’t buy it, then the house can only be worth 100 million.A real estate agent builds a house, but he can’t sell it at a price of 100 million. Can he not lower the price?When the real estate speculators reach 100 million, if there is no final buyer to take over, the house will fall into their hands, and the speculators will go bankrupt.

Therefore, to put it bluntly, in whose hands is the pricing power of China's housing prices?It's in your hands - the buyer of last resort!Of course, that is a collective concept.

7. Borrowing a lot of money to buy a house, chest tightness
My colleague Jimmy is from Suzhou. He has a bachelor's degree in electronic engineering from Shanghai Jiaotong University and worked in Shanghai for several years before going abroad. Six years ago, he immigrated to Toronto and searched for a job for half a year, but there was no suitable one.So he applied to the University of Toronto to study for a master's degree. After graduation, he successfully entered Canada's Wall Street - "Bay Street" (Bay Street, where the headquarters of all major Canadian financial institutions are located).

Recently, Jimmy became obsessed with Zhou Libo, downloaded all Zhou Libo's programs on the Internet and made them into CDs, and watched them repeatedly.He learned that I was also from Shanghai, and every time he chatted with me, he had to learn a few words from Zhou Libo.

One Monday, he walked into my office and imitated Zhou Libo's tone and said: "Sijin, my chest is... tight." I thought he was going to learn some jokes from Zhou Libo again, but he didn't look like he was preoccupied, so he asked What happened to him.

It turned out that his cousin was getting married.Marriage is said to be a happy event, so how could it make Jimmy "chest tight"?His cousin also came to work in Shanghai after graduating from university. He fell in love with a girl from Northeast China several years ago. His cousin and girlfriend earn 1 yuan a month, and now they rent a nice apartment. The rent is 5 yuan a month, and I live in style.

Jimmy told me that his cousin called the day before yesterday and said he wanted to buy the apartment they are renting for 300 million.The down payment is 75, and he has already collected 65, including the savings of himself and his parents, and the "sponsorship" from grandparents who emptied their pension savings.It's only 10 short, so ask Jimmy to borrow 2 Canadian dollars.Let's borrow it, I haven't bought a house yet, and I plan to buy it when the house price drops again.Don't borrow it, what should I say?

I figured it out, it wasn't right. For a house of 300 million yuan, based on the monthly rent of 5000 yuan, the annual rent is only 6 yuan, and the sales-to-rent ratio is 50, which is far more than three times the reasonable sales-to-rent ratio of 15. According to this financial standard alone, the housing price bubble is too big , and renting a house is too cost-effective!I have lived in Manhattan, North America for many years, and I have always rented an apartment.At that time, the apartment I lived in sold for $3 million and rented for $100 a year.The real estate tax in Manhattan is 3% to 2% of the house price. If you buy the apartment I rent, it will be at least $3 million.Paying property taxes, apartment management fees, and utility bills even exceeds $100 a year, which is not worth the candle.This is why more than 90% of Manhattanites would like to rent a house for a lifetime.The rent-to-sale ratio of an apartment in Manhattan is around 30, which is a good deal for renting.Not to mention Shanghai, why does Jimmy's cousin insist on buying it?
After hearing what I said, Jimmy said to communicate with his cousin again.A few days later, he came into my office again, "Sijin, my 'chest is still... tight'." "What's the matter?" I asked.Jimmy told me that his cousin and his girlfriend lived together for many years, but they never got married because they didn't have a house.The prospective mother-in-law has long warned: "If you don't have your own house, you must never get married!"

I told Jimmy, as far as I know, the design life of new domestic houses is generally set at 30 to 50 years, that is to say, the house will become a pile of ruins after 50 years.It costs 300 million yuan, not to mention paying bank interest. If you live in it for 50 years, you need 6 yuan a year for joint authorship, which is more than the rent.Assuming that 300 million is deposited in the bank, the annual interest income is more than enough to pay the rent.Most importantly, from a financial point of view, the so-called ownership of real estate refers to the ownership of land.However, in China at present, individuals cannot own land. Even if they buy a house, they only have the right to use the house for up to 70 years.Therefore, for the Chinese, no matter whether you buy a house or rent a house, the difference is only the length of the rent, not real ownership.

Jimmy said: "I know all of this, and I told my cousin. But my uncle called the next day, and immediately said: 'Are you going to kill our family?! Borrow or not Borrow, let’s say it happily.’ Speaking of this, I have to borrow. If I don’t borrow money, even my relatives can’t do it. I also know that if you borrow money, don’t expect them to pay it back. They will all be successful. I have become a house slave, how can I still have the money to pay me back? Forget it.”

It seems that Jimmy is going to have chest tightness for a long time now.And these house slaves in China really want to save face and suffer...

8. Can you make a fortune by speculating in real estate overseas?

In recent years, housing prices in most cities in Europe and the United States have been falling, but the places where Chinese immigrants live in groups have not fallen but risen.Around the world, Chinese people gather in places like Chinatown in New York, Flushing in Queens and Eighth Avenue in Brooklyn, Chinatown in San Francisco and Los Angeles, Vancouver and Toronto in Canada, Sydney and Melbourne in Australia, etc. Housing prices have been blown high, forming a "beautiful landscape."Just when the global economic crisis and the Europeans and Americans in general, especially the Americans, are talking about housing, it seems that the Chinese are the only ones who are swimming against the current.

Many people think that the rising housing market is good for the economy, but in fact rising housing prices are a double-edged sword.Especially once housing prices soar, it will definitely do more harm than good to the locals, and it is the same for the immigrants themselves.The higher the house price, the more unaffordable it is. Even if you buy it at a low price at first, it will only be rich on paper after it rises, unless you are a speculator who speculates on real estate for profit.Because after buying real estate in the United States and Europe, you must pay a real estate tax ranging from 1% to 3% every year. If the real estate tax is too high to be affordable, the homeowner will have to sell the house and move, so there is no way to live and work in peace.

I have a good friend. The couple bought a $12 house in Upstate New York 50 years ago in order to allow their children to receive education in a good school district. It belongs to the same community as the place where President Clinton retired and lived in seclusion. It can be said that it is Clinton The neighbors of the couple, it can be seen that the location is good.Housing prices have soared in the past few years, and the market value of their property was once as high as $100 million.When we met at a party, I congratulated them on becoming "millionaires"!Unexpectedly, they smiled wryly and said: "There is nothing to congratulate. In recent years, the property tax has been rising year by year with the house price. The land tax used to be 100 US dollars, but now the house price is 60 million, and the annual land tax will be 70 US dollars. If this continues , next year we won’t be able to afford it!” Before they finished speaking, “fortunately” housing prices began to fall.At present, the market value of their house has fallen back to [-] to [-] US dollars, and they are relieved.It can be seen that the soaring housing prices will cause "big events".

Recently, Vancouver city councilor and mayoral candidate Peter Ladner made it clear that the government should restrict foreigners, especially Chinese, from buying houses in view of the soaring property prices in Vancouver.He pointed out that a large number of real estate speculators from China are the main reason for the high housing prices. "Due to the soaring housing prices, the local people are forced to move out in large numbers, and at the same time, the new immigrants are prevented from entering. What we finally get is not what we have been proud of. city ​​of."

(End of this chapter)