On the other side of cloud

Tags:China economy P/R ratio real estate

Recently, Economist and many other foreign medias published quite a number of articles, to impress readers, that China’s economy won’t fail as Japan’s, and the real estate situation is “cannot yet be called a bubble”. However, I found something really impress me after that. I have calculated the price rent ratio in Shanghai, both downtown and suburb. Guess what? At lowest P/R ratio I found in Shanghai(through a Chinese website), is around 50, and many more excesses that, especially suburb like Minhang. And if you can take a look at here, you would find that the number at the bottom, tagged “Very overvalued”.

The P/R ratio is 50, means you need 50 years to get back what you have invested. Compare to this data to the US, according to CNN, before real estate bubble bursted in US, the highest P/R ratio is in East Bay(Bay area), California, about 50.9, followed by San Jose and San Francisco with 42.5 and 38.2. And the national wide average is 22.8. And at this time, the highest P/R ratio droped to 31.6, with the national wide average as 16.9. Even in San Francisco, the P/R ratio is mostly the half as in Shanghai.

What I think the critical is, the estimation of Chinese P/R ratio or rental yield(the reciprocal of P/R ratio) of all foreign media is incorrect. See this one, you would get a idea that the average P/R ratio in Shanghai is about 25 to 30(the rental yield is 4.01% to 3.35%). But when you give a look at real market price(through website is easy), the P/R ratio can easily beyond 50. So here is a gap, a big gap…

I don’t believe the rental price would soar as much as the real estate price, so let’s see, what’s the next…