Goldman Sachs, a leading global investment banking, securities and investment management firm, said in a recent research report that it retained its prudent attitude towards the real estate market in mainland China.

Perhaps we should get a definition of the word prudent: sagacious in adapting means to ends; circumspect in action, or in determining any line of conduct; practically wise; judicious; careful; discreet; sensible.

If that is what Goldman Sachs is suggesting it seems judicious, careful, discreet and sensible.

The report suggests that housing sales around the Yangtze River Delta region have another drop coming in the near future.

For the listed real estate developers used in this research, average housing sales for the first half of 2008 accounted for only 30% of the sales goal for the full year. Which means to make-up, sales have to be 70% in the second half which presents real estate developers with a tough challenge.
Source: Trading Markets

ING Real Estate, a unit of Dutch financial group ING, which has around $200 billion under management globally, is currently marketing a fund for China, which it hopes will bring in $750 million, mostly for building housing. Part of the plan is it expects troubled landlords and developers to offload bargain properties.

Many developers, struggling with a clampdown on bank lending and a dismal market for initial public offerings, lack the cash to finish projects and are expected to offload land and unfinished buildings.

ING, which already runs a $500 million fund in China, plans to continue working on projects with Chinese developers Shanghai Forte Land , Gemdale and Longfor, which wants to launch a Hong Kong initial public offering in the next three months.

Richard van den Berg, head of China for ING Real Estate, said, ‘You don’t turn the tables on your partners when the market turns in your favor.’

The China fund will target internal rates of return (IRR) of over 20%.
Source: Reuters

China could kick-start a property trust market next year to give its pension funds and insurers an alternative to volatile stocks and meager returns from government bonds, according to an industry group.

The move could lead to the listing of as much as $60 billion worth of buildings in the form of real estate investment trusts (REITs) over the next five years.

Stock market watchdog China Securities Regulatory Commission (CSRC) sent a delegation to Australia in May to study property trusts, and is working with other authorities including the central bank to draw up legislation.

The trusts will probably be externally managed, in line with the Singapore and Hong Kong model, said Peter Mitchell, head of the Asian Public Real Estate Association, which is advising the CSRC on the matter.

China is pushing ahead with REITs because insurers and pension funds are desperate for the stable returns they offer to match long-term liabilities. REITs tend to yield more than bonds, and offer capital gain if property values rise, but are typically less volatile than stocks.
Source: The Guardian London

Real estate sales are in a static mode or shrinking. The buyers are adopting a wait-and-see policty. As a result, a drop in prices, maybe quite steep, seems more and more likely.

The average price for new construction in May in Shenzhen was RMB10,254 per square meter, lower than the price in April.

Zhong Wei, director of the Financial Research Center of Beijing Normal University, said, ‘A spontaneous price adjustment such as the housing price drop in Shenzhen has been completely unexpected, not only by real estate developers but the government also.’

In Nanjing between January and May, 19,758 houses and apartments were sold, nearly 47% fewer than the year before.
In Zhejiang Province house construction increased by 8.3% over the same period last year; sales fell by 13.9%.
In Beijing in April and May this year, new housing reached 1.865 million square meters, while turnover was only 1.707 million square meters. In April alone, supply increased by 995,000 square meters with sales of only 747,000 square meters.
Shanghai’s May new construction sales volume reached only 44.5% of the total amount in May, 2007. The total turnover was only 1.4331 million square meters, and the supply/demand ratio was 1.24:1.

A recent report from the Economic Research Center of Renmin University. said, ‘Nationwide, in the first months of this year, 84.48 million square meters of building was completed, an increase of 20.2% over the same period last year, and the growth rate is 10.3% higher than in the same months last year. But the sales turnover was only 133.64 million square meters, a drop of 4% over the same period last year.’

Nie Meisheng, Chairman of the China Real Estate Chamber of Commerce, thinks China is now experiencing ‘real estate stagflation,’ characterized by rising prices and falling sales volumes.
Source: China Stakes

Another indicator that the China property market is impossible to forecast is that the news that China’s spending on factories and real estate grew 25.6% through May led by property development and boosted by reconstruction work after snowstorms in January and February.

Urban fixed-asset investment rose to RMB4.03 trillion ($585 billion) in the first five months from a year earlier after gaining 25.7% in the four months through April.

Spending was more than the combined value of the economies of Thailand, Singapore and New Zealand.

Investment in real-estate development rose 31.9% in the first five months from a year earlier but compare with sending on non- ferrous metals which jumped 41.5% and on coal which surged 47%.

This is a situation which is impossible to call. It will be months before there is a clear picture
Source: Bloomberg