Property Bid Fires Real Estate

China’s government may be splashing cold water on the nation’s property market but one buyer has just doused it with gasoline.

Associated Press

A new national record price was paid this week for undeveloped land designated for residential use in Shanghai, prompting analysts to speculate the deal could singlehandedly underpin apartment prices in what is already one of the nation’s priciest and most closely watched real-estatemarkets.

Chinese Analyst Warns of Real Estate Crash

In the wake of Dubai’s debt crisis, wary analysts are closely watching China’s real estate market for signs of a similar crash. Among the more pessimistic observers is Chinese commentator Shi Hanbing who warns China to prepare for the imminent burst of the real estate bubble.

In his December 18 blog post titled “China Should Prepare for a Real Estate Crash,” Shi compares China’s current situation to Japan before the disastrous crash in the early 1990’s, and identifies alarming similarities between the two economies.

Shi attributes the burst of the Japanese asset price bubble to three factors: speculation and over investment in real estate, excessive issuance of loans, and a population structure change. All three, according to Shi, are characteristic of today’s Chinese economy

chinese buy more cars than americans as their economy and real estate booms

Although incomes still lag the West it is expected that China will be playing catch up with a 12 percent growth rate forecast. Furthermore the renmimbi is expected to revalue upwards against Western currencies which will increase consumer buying power and push up property prices for overseas buyers.

Indeed the booming economy is also helping to drive the real estate market.

The National Bureau of Statistics (NBS) reporting on Thursday said that Chinese property investment was up by 17.8 percent for the first 11 months of 2009 compared to the same period in 2008.

The NBS also said that property prices in its index of 70 cities rose by an annualised 5.7 percent in November, up from 3.9 percent in October.

When currency moves and demand led growth are considered, it is clear that Western investors in the Chinese real estate market are likely to see excellent capital gains denominated in their own currency.

Beijing looking to real estate as driver of economy

China's leadership is unlikely to take big steps next year to rein in the nation's booming property market, as rising real estate values are seen as key to the development of a consumption-driven economy and backed by policy goals laid out for 2010, according to an analyst.

Deutsche Bank's chief economist for greater China, Jun Ma, said the annual meeting of the Central Economic Work Conference, which concluded Monday, left him with the impression that China welcomes further gains in real estate prices in the absence of an external driver for the economy.

Among the pro-consumption measures laid out, leaders said they would continue to extend support for first home buyers and those who are looking to upgrade

"This suggests that the government is not ready to take tough measures to cool off the real estate market before export growth recovers to a comfortable level," said Ma in a research note Tuesday.