October 2, 2010

Shanghai Ponzi Scheme

POLITICS - Investing in real estate in Shanghai China probably sounds like a good investment right? You couldn't be farther from the truth.

According to investigations into Shanghai's real estate market the city is chock full of business towers and condominiums that are sitting empty because there isn't enough people in Shanghai who can afford to live or work in those buildings.

So instead those buildings are just sitting empty, but the real estate developers who built them are just building more and more because there is no shortage of stupid investors who are giving them money. If anything there is too many stupid investors, hence why so many of the buildings are empty.

According to independent investigations by economists and reported by the CBC (see CBC's Doc Zone: MELTDOWN #4) approximately 40% to 50% of Shanghai's office space is sitting empty. Another 50 to 60% of Shanghai's condiminiums are also empty. They measured this by tracking electricity usage in the buildings during different hours of the day and determined that the majority of these buildings don't even bother to turn the lights on.

So there's no money coming in from people renting or buying these buildings, they're basically just taking up space and collecting dust.

But to keep investors happy the real estate developers in Shanghai just keep building more and more, taking money from stupid investors. They then use that money to pay off their other investors in one gigantic Ponzi scheme that makes Bernie Madoff look like an amateur.

When Shanghai's real estate bubble eventually collapses (and history suggests this is inevitable) everyone who invested in real estate there is going to lose their shirts (regardless of whether the company they invested with was legitimate or not, because the prices will collapse).

And Shanghai isn't the only city in the world doing this. Many cities in China, Dubai in the UEE and other cities around the globe have been this for over a decade now. They're all going to collapse eventually.

Anybody with money in these Ponzi real estate schemes, regardless of whether they're a stock broker or just a pensioner with a pension fund, is going to lose their shirts when the collapse happens.

This is proof that the only real estate people should be investing in is their own.

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