Our Take on China's Real Estate Market

The swift rise in China's real estate prices was largely driven by rapid economic growth and the process of urbanization, in our opinion. China's gross domestic product growth averaged 10.6% from 2003 to 2007, and the urbanization ratio--the percentage of its population living in cities-- increased to 43.6% in 2006 from 39.09% in 2002.

However, the price escalation was also caused by the appreciation of China's currency, which began in 2005 and led to excessive speculative investments in China's real estate market. We think this helped create a bubble in the housing market. The housing price/income ratio of eight major cities in China increased to 12 by the middle of 2007 from 10 in the middle of 2006, according to WIND, a financial data provider in China. Housing prices became unsustainably high, and as economic and regulatory conditions became increasingly unfavorable in late 2007, housing transaction volume declined and the housing market softened. The volume of housing transactions in China's major cities declined more than 20% in December 2007 compared with December 2006. For the past several months, transaction volume has continued to decline, and countrywide transaction volume declined 24% in July compared with same period of 2007.

China's property market under microscope

The central government is closely monitoring the property market after 18 cities including Shanghai launched various measures to arrest falling property sales, a senior official said Thursday.

Speaking on the sidelines of a press conference in Beijing, Du Ying, vice-minister of the National Development and Reform Commission (NDRC), said: "Real estate is a major sector in our fixed-asset investment, so the government is closely watching its development."

His comments came after the Shanghai municipal government raised by one fifth the mortgage ceiling of the housing accumulation fund, into which employees deposit money every month in return for lower interest rates. The measure took effect on Wednesday.

Abu Dhabi in US$6 billion China real estate venture

UAE, The Abu Dhabi Investment House is partnering with Chinese construction firm, Shanghai Construction (Asia) Co, to target US$6 billion of real estate developments across China.

The 50-50 joint venture is looking to acquire up to 16 real estate projects in the country, worth around US$6 billion, Abu Dhabi Investment House (ADIH) said in a statement.

It comes at the same time as ADIH is planning a US$1.5 billion private equity fund to invest in real estate and manufacturing in China.

Rashad Janahi, Abu Dhabi Investment House Managing Director said in an interview for Reuters it was investing an unspecified amount in the fund along with a local Chinese partner. The agreement to launch the fund would be signed in the next two months, he added.