The Edmond Sun


April 11, 2014

Watch China for the next economic trigger

EDMOND — For my male readers out there, remember back to your teens and 20s when one of the primary goals was getting a date and finding a girlfriend? Oh come on! You can admit it.  Well imagine how it would have complicated matters if no woman would give you a second thought if you didn’t own property. No, not that old beat up car you drove and sometimes slept in. I mean real property, as in a house.

Well, that’s how life is if you are a young man in China. No property, no girlfriend, no wife. This is the consequence of China’s one child policy. If parents could only have one child, they went to extraordinary measures to make sure it was a boy. Because of that, young men now significantly outnumber young women — as many as 30 million more.

Welcome to China, home of the biggest real estate bubble in modern history. Home prices in Shenzhen — China’s largest coastal industrial city — are 35 times income! Can you imagine making $50,000 a year, yet having to pay $1.75 million for a condo? And the rest of China is not much better. Home prices in Beijing are 30 times income. In Shanghai and Guangzhou they’re 28 times income. That’s insane.

These numbers exceed the house-price ratio of all the major cities in the world. For example, in Hong Kong, home prices are “only” at 17 times income. In Mumbai, they’re at 19 times income. In London, now the most expensive city in the developed world, they’re at 15 times income. Even in Vancouver and Sydney they’re only at 11 and 9 times income, respectively.

Without a doubt, China’s real estate bubble is unsustainable. But it gets worse. Thanks to overbuilding, the bubble continues to inflate, despite massive vacancies in cities across the country. According to electricity-use surveys, average vacancies run at 27 percent.  Ordos, the infamous ghost town, is China’s poster child for the trouble brewing in paradise. The city was constructed in the central part of the country to accommodate one million people, yet it has only 70,000 residents. To put that in perspective, that would be like a city about the size of San Jose that is 93 percent vacant!

And Ordos isn’t the only one. Tianduncheng (meant to look like Paris, complete with a replica of the Eiffel Tower) stands totally empty and Chengdu’s New Century Global Center (the largest mall and building complex in the world) is also almost completely vacant. In fact, since 2001, China has been building houses at a much higher rate than households have been formed.

At the top of the last bubble (2005 to 2008), China was building five million homes a year, even though average annual household formation was just 2.6 million. But instead of scaling back when everything crashed, the Chinese went in the complete opposite direction. In 2011, there were 19 million housing starts, but only 5.8 million new households. That means nearly 70 percent of the new homes constructed that year alone were completely unnecessary!

Why should we care? China’s real estate market is on the verge of utter ruin and this is a problem for all of us. When, not if, their property bubble bursts, it will send a shockwave across the world. First to suffer will be its citizens. That’s because the Chinese love real estate. Like art, it’s their investment of choice. In the second quarter of 2012, 53 percent of home purchases were for investment.

The Chinese have the highest level of home ownership in the world. Rural people have 92.6 percent ownership, whereas urban people have 85.4 percent. It might seem odd that urban citizens have a lower home ownership rate, but with the cost of real estate in the cities, it’s not surprising.

Property investment is so entrenched in China’s culture that it directly impacts a man’s chances of finding a girlfriend and eventually a wife. Chinese women must marry up — in all regards. Their spouse must be taller, wealthier and more highly educated. He must also own a condo or some kind of real estate. No deed, no — well, you know. Millions of Chinese men are destined to remain single. And you thought dating was tough when you were younger?

The second to suffer will be everyone else, particularly the Pacific Rim economies of South Korea, Japan, Singapore, Australia and New Zealand. And of course, the U.S. economy and Europe.

China’s bubble burst will be the driving force behind the next global slowdown, thanks to its close connection to the world of commodities. The country has pursued its emerging-country strategy for twice as long and twice as intensely as its failed counterparts, building more than twice as big a bubble. This leaves China caught in a vicious cycle.

With falling commodity prices hurting the exports and best jobs of resource-exporting emerging markets, they’ll reduce their demand for goods from China. China is then forced to reduce commodity purchases from these emerging markets, putting additional downward pressure on commodity prices, creating the vicious cycle. And here in the U.S. we’ll feel the impact in rising interest rates. As the crisis unfolds, China and the emerging markets will be forced to reduce their foreign currency reserves. They’ll buy less U.S. Treasury bonds, and that will help drive up interest rates in addition to our new tapering policies.

And then what was that puff of smoke? You got it — the fragile U.S. economic recovery.  When will all this happen? Beats me, but the course is set for China. My advice: Watch what goes on in China. It’s important. Thanks for reading.

NICK MASSEY is a financial adviser and president of Householder Group Financial Advisors in Edmond. Massey can be reached at Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment adviser.

Text Only
  • A Q&A on ‘Obamacare’ Court Rulings

    On Tuesday, two federal appeals courts issued conflicting rulings on the legality of tax subsidies being provided to people who bought “Obamacare” health insurance policies in Oklahoma and 35 other states.
    Here’s a look at the rulings’ potential impact in Oklahoma.

    Q: I’m confused. What did the courts rule today?
    A: A three-judge panel of the U.S. Court of Appeals circuit in Washington, D.C., decided that the government can’t provide tax subsidies for Affordable Care Act plans purchased in 36 states where the federal government is operating the health insurance exchange. Oklahoma is one of the 36 states. A few hours later, the U.S. Court of Appeals circuit in Richmond, Va., issued a conflicting ruling that upheld the legality of the health-care law’s tax subsidies.

    July 22, 2014

  • June healthy month for Oklahoma jobs

    Nearly 10,000 new jobs in Oklahoma were created in June, according to the U.S. Labor Department.
    Gov. Mary Fallin said Tuesday the state experienced one of the largest increases in employment in the nation in June. More than 9,600 additional people joined the state’s workforce in June.
    The unemployment rate in June dropped to 4.5 percent, its lowest ratio in six years. June’s rate was down a percentage point from 4.6 percent in May and April, according to the Oklahoma Employment Security Commission.

    July 22, 2014

  • UCO campus 3.jpg University of Central Oklahoma recognized as having friendly work environment

    The Chronicle of Higher Education named the University of Central Oklahoma as one of the “2014 Great Colleges to Work For.” Central is the only higher education institution in the state recognized on the list and one of only a handful of institutions in the nation given the distinction of being named to the Honor Roll for being cited most often among all the recognition categories.          
    Central joins Duke, Baylor and Notre Dame on the list of the 10 universities named to the large institution honor roll.

    July 21, 2014 1 Photo

  • Council approves funds toward ADA update

    City Council members have approved a $398,800 professional services contract with Accessology, a McKinney, Texas, firm, to establish an Americans With Disabilities Act transition plan for the city.
    Title II of the ADA requires state and local governments to make their programs and services accessible to persons with disabilities. It includes access to government facilities, programs and events and relevant policy changes.
    Accessology was selected out of a pool of five finalists by a five-member committee to create Edmond’s plan. The firm will partner with Kimley-Horn and Associates, a design consulting firm located in North Carolina.
    Edmond’s last ADA transition plan was created in 1992.

    July 21, 2014

  • Panel approves jail services agreement

    City Council members have approved renewal of the city’s jail services agreement with Oklahoma County for prisoners incarcerated at the county jail on city charges.
    The current annual agreement expired June 30. It provides the feeding, care, housing and upkeep of said prisoners. Edmond uses the county jail when the city jail is at capacity.
    The sheriff’s office proposed a slight increase from $46.25 to a $46.50 daily rate per prisoner. City staff said the current agreement is working satisfactorily and believe the proposed rate is reasonable. The new agreement took effect July 1. The city can hold prisoners in its current jail  up to 10 days; a new jail with 10 male and five female cells will be available inside the new Public Safety Center next year when the facility opens.

    July 21, 2014

  • Panel establishes 911 phone rate

    City Council members have established the rate for the 911 emergency phone service fee for calendar year 2015
    Council members set the rate at 3 percent of the recurring charges as designated by the tariff for exchange telephone service or its equivalent within Edmond beginning Jan. 1, 2015.
    Fees collected by wireless and voice over Internet protocol companies are established under a separate statute. To continue collection of the locally authorized service fee on landline phone bills, local governments must approve a resolution on an annual basis to set the actual fee.
    Governments must also through the Association of Central Oklahoma Governments notify the appropriate incumbent local exchange carrier and competitive local exchange carrier phone companies by Sept. 1, 2015.
    ACOG recommended for calendar year 2015 to maintain service fees at their current level of 3 percent.

    July 21, 2014

  • Council approves $2.5M extra for utility

    City Council members have approved the transfer of a $2.5 million appropriation for Edmond Electric.
    The action was needed due to higher natural gas prices. Those increased prices caused wholesale electric purchase costs to exceed the department’s budget estimates for Fiscal Year 2013-14. To cover the increased costs, a transfer of funds from the “Transfers” category to the “Other Services and Charges” category was necessary.
    It will maintain state law requirements and not increase Edmond Electric’s budget.
    The action occurred during Monday’s meeting and was approved unanimously.

    July 21, 2014

  • The Escape Edmond entrepreneurs sleuth their way to success led Andrew Gipson to an industrial complex outside of Dublin, Ireland, about a year ago. The recent University of Central Oklahoma graduate was in the midst of an extended stay in Australia and the United Kingdom when he walked through the doors of XIT Live Escape Adventure Game. According to Tripdadvisor, it was the top attraction in Ireland. He had to go.
    An hour later, Gipson, 24, exited the facility inspired.

    July 19, 2014 1 Photo

  • McAlister’s Deli sets ‘Free Tea Day’ for July 24

    McAlister’s Deli, a leading fast casual restaurant, will celebrate its sixth annual Free Tea Day on July 24.

    July 19, 2014

  • Steffen and Farrow Steffen and Farrow celebrates 40th anniversary

    Steffen and Farrow Orthodontics recently had a ribbon cutting at its Edmond location, 1601 S. Boulevard, to celebrate its 40th anniversary.

    July 19, 2014 1 Photo