Property market - 2024-03-15

I came across an article claiming that China’s property market will be fine. The article cited a shrinking population, which could lead to more people concentrating in cities, creating demand for housing upgrades. It also pointed out that the average house size is still relatively small. The article seemed promising, suggesting that property developers are a good investment option.

But hold on—why are China’s property developers going bankrupt? The article fails to address the real issue: property developers have taken on a massive amount of debt! Overleveraging can be disastrous if they are unable to sell properties, collect payments, or face project failures.

It’s dangerous to rely solely on market analysis like this, as it won’t necessarily lead to success. We need to conduct our own analysis. If a company is overly reliant on debt to fund its operations, it will struggle when the economy worsens, and income drops.

We should focus on individual companies that don’t depend on borrowing to fund their growth and won’t be vulnerable to short-term economic downturns. If a company needs constant capital raises, it’s a red flag. A good company should have enough cash flow and organic growth to sustain itself over the long term.

Forget about companies hoping for external factors or good news to recover. We can't predict how long that will take, and constantly chasing these opportunities can waste a lot of mental energy.

After reading that article, I took some time to reflect on the major flaw in its argument. While it sounded promising, it ignored the dangerous business model of relying heavily on debt—especially when the economy turns bad.

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