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Monday, April 14, 2008

Foreign interest in China property

CHINA, a nation of 660 cities, offers immense opportunities for real estate developers and investors to partake in the country's rapid development and growing prominence as a major global power.

Rapid commercialisation and privatisation of China's real estate have contributed to massive development activities and growth in the property sector.

Jason Leow with a model of Raffles City Chengdu.

As the people's income level and standard of living continue to improve, owner-occupier demand will further drive growth in the residential and commercial property sectors.

Although the market is still robust with good upside and yield potential, the Chinese government looks set to adopt further austerity measures to prevent the possibility of an overheated property market.

Measures to curb speculative investment in real estate were introduced in 2005, followed by guidelines to control demand and supply of property in 2006. Last year, various measures to control money supply and interest rates were launched to curb liquidity.

With the tightening measures, developers with deep pockets and strong credentials are looking forward to perform even better in the coming years.

Singapore's CapitaLand Ltd, which is one of the biggest foreign developers in China, continues to see substantial prospects in China.

“The market is very deep, and having developed projects mostly in the gateway cities of Shanghai, Beijing and Guangzhou, we are now moving into the second- and third-tier cities. CapitaLand has projects on a broad property front - from residential and retail to service residences and integrated commercial projects,” CapitaLand (China) Investment Co Ltd deputy chief executive officer Jason Leow told StarBiz in Shanghai recently.

“China's real estate demand at 200 million sq m a year is humongous by any standard. Although the market will be faced with correction along the way, we are confident that demand for a broad type of property will remain strong over the next five to 10 years,” he added.

Leow said that given the tighter credit environment, foreign capital control and weaker sentiments, the market was currently going through some short-term consolidation.

“However, market fundamentals remained strong with real demand driven by urbanisation, strong economic growth and rising income.

“The measures taken by the Government in recent years are to ensure sustainable development of China's property market. Opportunities will emerge for well capitalised companies with proven track record and onshore operating platform,” Leow added. Economists and fund managers who participated in a panel discussion at the recent Third Annual Real Estate Investment World China 2008 Conference in Pudong, Shanghai, recently concurred that China's property market would continue to grow and the US sub-prime mortgage woes would not adversely impact China's economy and its property sector.

According to CLSA Asia Pacific Markets chief China strategist, Andy Rothman, China would not encounter a mortgage loan problem like the US “as the Chinese property buyers are well known for paying in cash and there are no fancy loans such as those in the US.”

“In the last five to seven years, the people's rising income and wealth have supported a robust property sector. There has been much wealth creation from the rapid economic growth that has been used for property investment,” he said.

Rothman said that to cushion against a potential hard landing in the event of a recession in the US, the Chinese government had made huge allocation for a social safety net, including social security, education and welfare, for the people.

Citic Ka Wah Bank Hong Kong chief economist and strategist Dr Liao Qun said the biggest challenge for the Chinese government was to cool down the economy and ensure a soft landing should a global slowdown happen.

“China's economy will grow at 8% to 9% this year and 9% to 10% next year. In the absence of any macroeconomic control, the economy will grow at 15% per annum.

“In my opinion, rather than further raising interest rates to curb spending, it is of the utmost importance to manage inflation and adopt measures to raise food supply,” Liao added.

On the long-term outlook for property investors in China and the sustainability of the market boom, Poly Real Estate Group general manager Song Guangju said industry players were optimistic of the future potential of China's market.

“The market is massive and offer substantial opportunities in a broad range of property products. Developers need to spread their projects in the various Tier 1, 2 and 3 cities to balance out any potential risks in the event of a slowdown,” he said.

In the past 17 years, the Hong Kong-based Poly Real Estate has moved its focus to mainland China projects and has completed various projects, including townhouses and villas, and luxury apartments in various cities.

Property analysts said China's office sector would stay as one of the star performers going forward.

The completion of the Shanghai World Financial Centre - one of the world's tallest buildings – by mid-2008 will mark the start of the second office supply boom in Shanghai. The first one was from 1996 to 2001.

Cities across China are trying to copy the Pudong model in creating new central business districts.

ZY Real Estate associate June Wang said that in the medium term, office demand would continue on an upward trend in major Tier 2 commercial hubs such as Ningbo, Hangzhou and Chengdu, as companies eagerly try to tap into China's growing domestic market.

“Good quality office space is recording significant rental premiums and attracting prestigious tenants,” she said.

By The Star (by Angie Ng)

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