Its not like we have not had our share of bubbles in North America. And we are not unfamiliar with the results. But what happens when a bubble on the other side of the world collapses and its effects ripple like a tsunami the world over? This is what is happening in China right now. And like the real estate collapse in North America and Europe it is following the same pattern.
Chinese real estate is perhaps the most expensive on the planet. At an average of $ 1,160 USF per square meter against an average annual family income of about $ 7,500 USF per year it is almost 5 times more expensive than New York at $ 2,059 and $ 72,000 respectively.
China has been putting the brakes on real estate lending and has implemented some measures designed to let the market cool but at this stage, very similar to the 2008 real estate markets in the United States and Europe, speculation is rather rampant.
The debt loads behind the real estate market in China are lower than the US and Europe but at the current price levels real estate has a long way to fall even if it were to fall in line with Tokyo or New York. However it may just be that there are enough wealthy speculators to keep the market going for a long time but the end result will be a crash. Signs of collapse are already starting to show in prices and everyone, including the Prime Minister are stating that China has a real estate bubble.
So if European and North American debt levels were not enough to give investors serious pause for concern, the potential for a Chinese real estate crash should be. Where do you think they get all the commodities and durable goods to produce all the materials required for putting up massive real estate developments? That's right, a lot of it comes from North America and Europe as well as Asia.
European and North American consumers helped create the debacle that is China and it will be European and North American consumers and businesses that pay the price when it has its first major collapse.