BT : China properties: bubble or no bubble?

Business Times - 21 Jan 2010
China properties: bubble or no bubble?

THE views are split almost right down the middle. Is there or is there not a bubble in China's property market? Cheung Kong, one of the largest property developers in Hong Kong, yesterday said that there are no bubbles in either Hong Kong's or mainland China's property markets. Said its executive director Justin Chiu: 'I don't really see a bubble. There shouldn't be too much concern about the governments trying to crush the market.'

The comments are in direct contrast with that of renowned investor Jim Rogers. Though a very vocal China bull, Mr Rogers cautioned on Tuesday that real estate prices in Hong Kong and Shanghai are in bubble territory and 'should decline'. Efforts to restrain lending underscore the government's attempt to take 'some of the heat out of the economy', he said in an interview with Bloomberg. The rest of the Chinese economy, however, is 'hardly in a bubble', he added.

Views differ among investment analysts and asset managers as well. Mark Mobius, who oversees US$34 billion of emerging market assets at Templeton Asset Management, said two weeks back that China's property market isn't about to crash. 'The Chinese will act rationally. They are not going to kill the market,' he said. By contrast, former Morgan Stanley chief Asian economist, and now an independent economist based in Shanghai, Andy Xie is unambiguously bearish, describing China's asset markets today as 'a big bubble'.

The numbers give us a clue as to what is going on. Record new loans fuelled a 75.5 per cent jump in China's property sales last year. Property prices in 70 cities across China climbed 7.8 per cent in December, the fastest pace in 18 months. But in places such as Shanghai and Beijing, prices of new apartments leapt by 50-60 per cent during 2009.

One should certainly be circumspect when taking in the comments of politicians, stock analysts and fund managers. They may have their own agendas. A good judging yardstick, however, is perhaps the actions (not words) of people in the property business. They seem to be of the opinion that there is genuine demand for properties. On Monday, CapitaLand announced it is buying over the real estate business of Hong Kong-listed Orient Overseas (International) for US$2.2 billion. The purchase includes seven sites in Shanghai, Kunshan and Tianjin, with about 1.48 million square metres of floor space. Meanwhile, Hong Kong developers including Cheung Kong, Kerry Properties, Shui On and Hang Lung Properties are not slowing down their pace of development in China either. Even SOHO China, one of the leading private developers on the mainland, is not stepping back despite saying that it sees a lot of asset bubbles. Its strategy instead is to turn around its developments faster.

The good thing is that China's government is vigilant and has already imposed a number of measures to cool down the market. Actions from property developers seem to suggest that while the cooling measures may stall the market temporarily, in the longer term, the inevitable trend is up.

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.