Smog envelops a construction site in Beijing

Ruchir Sharma is head of global emerging markets at Morgan Stanley Investment Management and he has written a major article on the growth of China.

His opinion seems to be that China has simply grown too big to keep expanding at the 10% rate it has sustained for 30 years, and is likely to slow to 8% at best next year and for the foreseeable future.

He writes: For the first time since the Chinese housing market was fully privatized in the late 1990s, a coordinated real-estate downturn has set in across all major provinces. The feeding frenzy of rising prices and increasing demand has given way to a vicious cycle of falling prices and slowing demand.

Housing is increasingly unaffordable, as property prices doubled between 2000 and 2007, and authorities began raising interest rates last year in an attempt to prevent overheating.

Still, for much of this year, developers have continued building with abandon. . . .

Now there is widespread anecdotal evidence that a price war is breaking out from Beijing to Shenzhen.

The full account, which is much, much more, and somewhat gloomy reading is HERE.
Source: Newsweek

Jones Lang LaSalle

Jones Lang LaSalle Head of Research (Asia Pacific) Dr. Jane Murray said in the report Asia Pacific Property Digest Second Quarter 2008, that ‘The Asia Pacific property markets are entering a correction phase that will continue over the next 12 months at least.’

Jane Murray, however, noted that in contrast to previous cycles, the extent of the downturn is expected to be moderate in most markets in Asia Pacific given the underlying sound fundamentals.

She  pointed out that potential oversupply is becoming an issue in some parts of the region, notably tier I cities in China.

The Jones Lang LaSalle report highlighted that the retail sector has continued to perform well over the first half of the year, with Hong Kong and Shanghai posting the highest rental growth in the region.

However, it said that emergence of more difficult trading conditions, coupled with new supply coming on line in number of markets is likely to result in more moderate rental growth going forward.
Source: Trading Markets

China property

A keynote presentation titled ‘US Investors Abroad: Emerging Markets - Friend or Foe?’ at the Cityscape USA conference in the Javits Center brought together a mixed panel of industry experts.

The panel focused on where the opportunity lay for US investors seeking to expand globally. Given that there were not a lot of funds that were willing to go global yet, and that the typical foreign investment came from ‘entrepreneurial capital, opportunistic and private investment.’

China came up as a country in which there was a lot of activity. The situation was summed up as ‘long term — bullish, short term — cautious.’

When the question was posed to list the top investment opportunities in foreign markets, the answer came, ‘China, China, China.’

Dr. Jane Murray, head of Asia Pacific Research and international director at Jones Lang LaSalle said, ‘The growth rates are staggering.’

She did have a few warnings about China, which has seen a lot of ‘overheating’, in her terms, of its real estate market, as of late. The central government put ‘restrictive measures’, she explains, to cool the market down, some of which are monetarily prohibitive, such as forbidding foreign borrowers to be involved in a deal.

She said, ‘China is not an easy place to do deals at this time.’ There are still deals getting done, she explains out, but you have to look more toward development in second tier cities.

More on this HERE.
Source: Globe St.com

Chinese real estate

Xinhua Finance has published a report on ‘Credit Risks of China’s Real Estate Sector’ that identifies policy risk as the primary risk factor affecting the credit worthiness of the real estate industry.

The report discusses the status of China’s real estate developers, and examines both business and financial issues challenging the industry.

The report explains that China’s real estate sector has benefited from the nation’s strong economic growth and favorable government policy since the beginning of economic reforms.

But with the slowing of the economy and the tightening of credit, Xinhua Finance believes that the recent liquidity problems of the industry are the beginning of a process of unfolding credit risks.

These risks are associated with the nature of the industry and have accumulated over time.
Much, much more HERE.
Source: MarketWatch

Credit Suisse said it maintained its ‘overweight’ rating on China’s property sector despite June new home sales showing weakness in several key provincial cities. It believes a recovery is possible by the fourth quarter.

Credit Suisse analyst Ronney Cheung said low sales figures do not bode well for China’s listed developers who are now struggling to meet their year-end goals.

Transaction volumes from all cities were down 23-56% month-on-month with the exception of Beijing and Tianjin, up 15% and 13% respectively. Shenzhen was the hardest hit, with transactions tumbling 38% month-on-month.

Sales are expected to remain stagnant up to September on fears of potential rate hikes by the central bank in a bid to fend off growing inflation and still-lower transaction volumes during the Olympic Games.

However, there should be a turnaround.

Ronney Cheung said, ‘A recovery in transaction volumes should be expected from September onwards, due to the removal of several concerns and pent-up demand. We estimate developers may further cut prices in order to meet their funding needs and to achieve their sales targets.’
Source: Quamnet