I am not making this up … today was insane. I set out to visit a property developer here in Changsha, the capital of Hunan Province, and a quintessential example of one of China's numerous "second-tier" cities.
For months, I have been working on the theory that the Western media harping about the Chinese property bubble have it all wrong. Everyone I've talked to in Asia concedes that there's some hype built into the high-end apartment trade in trophy cities like Beijing and Shanghai, but not so much when you show up in working-class, second- and third-tier cities.
China is not one giant property bubble waiting to burst, like America did. The dynamics are wildly different, though Western financial media and every other emerging-market newsletter writer I've read in recent months clearly don't grasp this yet.
(Indeed, the morning after this insane day, China Daily published on its business page a story about overseas money flooding China's property market – especially in second- and third-tier cities, the investment strategy I've been preaching for months! The irony, of course, is that Western media and high-profile U.S. hedge-fund managers are talking about a Chinese property bubble even as institutional investors from the U.S. and elsewhere are dumping tons of money into Chinese property! Just another example of the pros throwing up smoke screens so they can chase the best investments behind your back.)
Apartment Complex? Try Apartment City
My arrival at the first of two properties I'm visiting was nothing short of a freakin' state visit by a political dignitary.
Guards lined up to salute our blue minivan as we arrived … no shit; saluting!
A procession of hangers-on, construction foremen, property managers and the like were clustered in a group, easily 25 in all. I was embarrassed. I'd come simply to get a feel for the kinds of property middle-class Chinese are buying and to spend time interviewing a regional director for one of China's leading property developers in second- and third-tier cities. Everywhere I turned, a videographer and some dude with a camera was capturing my visit. Why, I cannot imagine.
To be certain, an apartment complex in China is only remotely related to those in the average American town. You're likely accustomed to the two- or three-story apartment complexes that spread over five or six buildings and house maybe two hundred families.
This first complex had 34 towers, each with between 18 and 32 floors, spread over acres and acres of lushly landscaped grounds with ponds and fountains that rival those at Vegas hotels. When completed next year, the property will house 3,500 families, or more than 10,000 residents. (The photo at the top of this blog is the model representation of the complex on display inside the clubhouse.)
The second complex was even larger and more over-the-top: 56 towers, each 32 floors high. It had a car bridge lined entirely with white jade. When it opens in 2012, it will house close to 9,000 families, or nearly 30,000 people, in high style. The apartments I toured are outfitted with marble and rosewood floors and door-casings. Kohler bath and kitchen fixtures. Triple-crown molding. High-end appliances.
The clubhouse contains a daycare, fully outfitted gym, and music parlor with smaller rooms for individuals to practice piano (each room is fitted with its own piano). There are multiple rooms for mahjong, a library, a ballroom for dancing, rooms for arts and crafts and painting, a spa and reflexology center with more than a dozen reflexologists, a ping-pong parlor with multiple high-end tables … and so much more.
You might be thinking, as I did, "Wait, are there really enough upper-middle class Chinese to afford luxurious, 1,000-square foot apartments that sell for the equivalent of US $100,000?". Well, here's a statistic: The first 14 towers at the first complex I visited sold out in six months. The next 18 are soon to go on sale, and the company I visited expects those will sell out by next summer. Maybe the company is lying. Who knows? But they are one of the most-respected developers in the country.
A Taste of Reality
The company arranged for lunch at a swank, Hunanese restaurant overlooking Moon Lake. And can I tell you: Hunan cuisine in the States is cat-chow compared to the authentic stuff. The company's regional director joined me and six others as the wait staff buried a large, lazy Susan in bowls of spicy, braised mutton, oxtails, a tasty fish-head dish, marinated tofu and Chinese vegetables.
There was wine and green tea, in which whole leaves floated in my glass. It was a five-course meal ending with what I think was mango and sweet-rice pastry and Chinese milk tea that might now be my favorite liquid ever.
If nothing else, the day has confirmed for me a reality that I've been talking about for a while – that China's second- and third-tier cities are where investors should concentrate their Chinese exposure. And it doesn't have to be just property. There are other ways to play the trend, including shopping malls, construction and even banking.
It's also clearer than ever that the Western media do not understand China outside of Beijing and Shanghai. It's really a different world out in these parts of China.Choose carefully who you listen to. The news you hear in the States doesn't necessarily reflect the reality inside China.
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