Chinese Property Market Update

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lorin liu

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Large international corporate investors have been ploughing substantial funds into the commercial real estate market in China throughout 2005 and they have benefited in spite of the Chinese government’s actions to stop speculative property investment and prevent a real estate bubble from occurring in China.

The series of legislative changes put in place in 2005 by the Chinese government to slow the fast advance of the residential property market have resulted in property prices in the main Chinese cities of Shanghai, Beijing and Guangzhou dropping by around 15% since they hit record highs in March 2005. Over the longer term the government’s actions should inspire careful and sustainable investing rather than short term speculative investment from overseas buyers seeking a market that they can make a fast profit from.

The properties hardest hit have been high end apartment housing. In direct contrast however, the commercial property sector in China has benefited and profited throughout 2005 from strong international corporate investor interest.

Institutional investors from the US and Australia have been particularly active in China preferring to purchase resale office complexes and also to invest in brand new and already established retail units and spaces as well as serviced apartments. Investors such as Morgan Stanley, Macquarie and Citigroup have been seeking rental returns and capital gains from the commercial property market in Shanghai in particular and so far they have not been disappointed.

At the same time as putting in place higher interest rates and taxes, sales restrictions and buyer restrictions, the Chinese government have worked hard to create more transparency in the property market in China. Criticism of the authorities in this particular area has been great and intense and actually put many investors off the Chinese market as a result. Trouble stems from the fact that it’s difficult for a potential property purchaser to have security of title or to have the legal weight to enforce property ownership rights in case of dispute but the Chinese authorities are now working to directly resolve these issues and make their real estate sector more attractive to overseas investors.

The key to the sustainability of the Chinese property sector is achieving a delicate balance between preventing a property bubble that could burst and harm some investors and the Chinese economy as a whole and also creating a market environment attractive enough to invest in and profit from.

Institutional investors are now more certain than ever that the Chinese commercial property sector offers this fine balance. On the one hand investors are aware that prime office space in China’s main cities is in relatively limited supply which means that those who own the spaces can command ever increasing rental yields as demand for office space in China increases. On the other hand the domestic purchasing power in many of China’s main cities is on the sharp increase and those that have interests in retail spaces will profit as businesses can afford to pay higher rates as they are generating greater profits.

One final word - in terms of the residential property market in China it is by no means dead! In fact the negative price correction that 2005 has brought in certain areas of certain cities has been a knee-jerk reaction to the Chinese government’s actions to slow the market down and has actually resulted in properties being sold below their true market value. The Chinese residential property market has many years to run and run and smaller investors may well benefit from waiting until the transparency and property ownership issues have been sorted out before buying into this predicted period of growth.


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China to adopt tight monetary policies in 2008

expect further cooling to the hot economy

BEIJING, Dec. 5 (Xinhua) -- China concluded its three-day 2007 Central Economic Work Conference on Wednesday with a pledge to shift its monetary policy from "prudent," an approach it has followed for the last ten years, to "tight."

The conference, an annual event initiated more than a decade ago, serves as a crucial mechanism for the Communist Party of China (CPC) Central Committee and the State Council, the cabinet, to make policies to govern the Chinese economy.

China will maintain a "prudent" fiscal policy for the coming year.

Various monetary instruments should be used to regulate liquidity and to strictly control the size of loans and frequency of credit extension, so as to better regulate domestic demand and balance international payments, said the conference.

China raised interest rates five times and reserve requirement ratio nine times this year.

The conference said that with a prudent fiscal policy and a tight monetary policy, China will be able to achieve "the Two Prevents" in the coming year: to prevent economic growth developing from rapid to overheating, and to prevent price rises evolving from structural to evident inflation.

"A tight monetary policy can develop a progressive effect, which will help curb the overheating in markets of assets, including equities and real estate, and then cap price rises," Cao Honghui, an economic researcher with the Chinese Academy of Social Sciences (CASS),said to Xinhua.


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