The influence of the state on the Chinese real estate market

Increasing influence of SOE’s on Chinese real estate market (source: New York Times)

Earlier this year, we posted an article by the Global Times reported the measures the Chinese government took on the increasing influence of State Owned Enterprises (SOE’s) on the real estate market. Today, the New York Times has a front page article on the growing influence of these SOE’s. The article is chrystal clear about the negative effects the SOE’s have on the real estate market:

By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-driven speculative bubble

Figures proof a potential bubble, about which we reported earlier:

A recent study published by the National Bureau of Economic Research in Cambridge, Mass., found that land prices in Beijing had jumped by about 750 percent since 2003, and that half of that gain came in the last two years. Housing prices have also skyrocketed, doubling in many cities over the last few years.

Read the full article here.

Ordos: bubble or unique condition?

Although not in the list of ‘Go West’ cities, Ordos is one of the most interesting places in China. The city, in the heart of Inner Mongolia, became rich due to the coal mining industry and, according to Merrill Lynch economist Ting Lu:

‘Its gross domestic product has grown a “staggering” 25% a year over the last eight years’, which is more than twice as fast as the national average. (..) Its per-capita GDP of $21,600 is more than twice than of Beijing’.

The Ordos Government ‘has tried to keep the coal wealth closer to home’, by developing a new city next to the existing one. As many new cities in China, the new part of Ordos, called Kangbashi, is still empty. Read the rest of this entry »

Global Times - SOEs barred from realty

Housing development in Xi’an; picture Go West Project

China is taking serious measures in their attempts to slow down the real estate market. Today, the Global Times has a frontpage article which announces that a large number of State Owned Enterprises in the real estate market will be withdrawn from the market.

More than 70 State-owned enterprises will be withdrawn from the real estate sector once their current development projects are complete, China’s State-owned Assets Supervision and Administration Com-mission said Thursday.

However, not everyone believes these measures will help:

“It doesn’t stop the remaining firms from spending hugely on land. Instead, it only leads to the concentration of capital, making them even richer,” Wang said, urging such property developers to commit to offering more affordable housing rather than cashing in.

Read the whole article here: Global Times - SOEs barred from realty.

Real estate bubble - or not?

When travelling through China, we often see empty buildings. Or streets. Or city parts. Whenever we ask people what is happening they say ‘Don’t worry, all these apartements are already sold. People are renting them out as an investment.’ We heard that story so many times, and we thought it sounded so unconvincing that it made us ask some questions. And apparently we are not the only ones.

The New York Times is one of a lot of sources that is reporting about China’s real estate market and questioning if there is a bubble appearing, or maybe already there. The article describes a up market development at the Shanghai riverfront, and states that the effect of a Chinese real estate bubble on the worldwide economy is huge. Read the article of the NYT here: The New York Times - Breaking News, World News & Multimedia.

But there are more people writing about this subject. Patrick Chovanec, an economist and associate professor at Tsinghua University frequently reports about this subject. He did a very interesting interview with Zhang Xin, the CEO of real estate developer SOHO China, last month. In this interview mrs Zhang states the following:

Basically . . . our strategy is to sell everything we have.  The real estate business should really be looking at rental yield; build a building and then lease it out with the rent giving a decent return.  But, because of where China is with asset bubbles, people want to buy the assets regardless of whether they can be leased out or not.  People just want to hold [property], even if it is empty.

These are quite remarkeble statements, especially for a CEO of a real estate company. More indicators of a possible bubble can be found in this post of Chovanec.