Ming Wei Real Estate Investments

by Xinhua writers Chen Yongrong, Zhang Zhengfu and Wang Lili

BEIJING, Jan. 14 (Xinhua) -- Despite a promising economic outlook, China still has some problems in its economy, and one of them is surging home prices.

Over the past month the government has rolled out measures to curb soaring property prices and stop speculation, but they would take time to work, according to economists and industry insiders.

HEADING FOR CRASH?

A recent New York Times story sternly warned that China's economy was headed for a crash, citing James S. Chanos, a Wall Street hedge fund investor.

"Its (China's) surging real estate sector, buoyed by a flood of speculative capital, looks like 'Dubai times 1,000 -- or worse'," said Chanos.

Wang Xiaoguang, a researcher with the Chinese Academy of Governance, said nobody would believe China's property market did not have bubbles.

SHANGHAI—China has told banks to stop giving commissions to real-estate agents for introducing mortgage customers, as Beijing tries to rein in an overheated property market and unscrupulous lending practices.

The warning from a banking industry association came after an unexpected decision by the central bank to tighten the reserve requirement for commercial lenders, a move aimed at curbing loan growth amid mounting concerns over inflation and a broad-based asset bubble.

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A statue of Mao Zedong stands before a residential construction site in Taiyuan, Shanxi province.
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The China Banking Association said Wednesday that the new guideline on housing-loan commissions has been in effect since Jan. 1. The association, which is under the directive of China's banking regulator, didn't specify whether banks that ignore the guideline would be penalized.

"High commissions paid by banks to real-estate agents have seriously disturbed the [financial and real-estate] markets and impacted banks' credit business," the association said in a statement.

Agents could receive commissions ranging from 1.2% to 1.5% of a home's value from banks, the state-run Shanghai Securities News reported, citing several agents.

The practice isn't unique to China but has raised concerns among regulators, as banks often lowered lending rates or relaxed lending practices to secure individual mortgage loans, a lucrative sector for lenders, while real-estate agents helped borrowers forge mortgage documents to get higher commissions.

China ordered vigilance against foreign "hot money" flows and speculative real estate investment on Sunday in its latest expression of concern over a surging property market.

The order issued by the State Council, or Cabinet, called on authorities nationwide to take a range of measures to "promote the stable and healthy development of the real estate market".

Property prices have soared recently, bolstered by easy bank loans, tax breaks, and lower down-payments introduced by the government last year to support the real estate sector amid an economic slowdown.

The price gains have raised fears of a property bubble.

hina and the U.S. are locked in a sort of economic mutually assured destruction, in which we need them to lend us money and they need us to buy their low-priced products. So if China's economy gets into trouble, the U.S. will feel the effects. That's why reports of a possible real estate bubble in China matter to people in the U.S. The evidence supporting the China bubble case is compelling, but the challenge is to figure out when the bubble will pop and how China will react.

Before looking at these questions, consider the evidence suggesting a Chinese real estate bubble. The New York Times reports that super-star short seller James Chanos -- who bet right on the collapse of Enron -- has now set his sites on China's real estate market. Chanos views China as "Dubai times 1,000 - or worse" and suspects that Beijing is faking its reports of 8% GDP growth, according to the New York Times.

NEW YORK -- China's decision Thursday to raise the yield on its three-month bills sends a clear signal to the country's banks to avoid excessive lending in 2010.

By hiking the rate to 1.3684% from 1.3280%, the first increase in nearly five months, China emphasized its determination to tackle the fallout from the government's economic stimulus program that resulted in a massive surge in bank lending last year.

But despite a pessimistic reaction in some financial markets, it doesn't necessarily follow that an adjustment to a weekly money market operation means the government will suddenly tighten credit in the world's third-largest economy.

Specifically, China is telling its banks the central bank doesn't want to see an orgy of casual credit during the first months of the year in anticipation of tighter rules later on. It is also taking concrete steps to mop up some of the excess liquidity sloshing around its financial system because of indiscriminate lending in 2009.

We might be tempted to envy China's spectacularly resilient real estate boom: After sagging in the global financial meltdown of 2008, property values in China's urban centers skyrocketed in 2009. Shanghai's Pudong district, for example, experienced a 57% rise in a matter of months.

By comparison, residential real estate in the U.S. is up 3.4% on average from its bottom in May, but still almost 30% below its peak in April 2006.

However, those admiring China's reflated housing bubble might be careful what they wish for, as the new real estate bubble in China is even more precarious than the one which imploded in 2008.

The popping of China's current housing bubble -- considered inevitable by regional experts such as Andy Xie -- could have widespread consequences. If housing turns down in China, China's growth could slow or even decline. And since the entire world is looking to China to lead global growth, then that could spell major trouble for the "global economy is recovering" story.

By Bloomberg News

Dec. 18 (Bloomberg) -- China property stocks fell the most in four months, led by Poly Real Estate Group Co., on concern the government will step up measures to curb property speculation.

Poly Real Estate, China’s second-largest developer by market value, plunged 7.5 percent to 21.88 yuan, a ninth day of losses, after the government increased down payment requirements on land purchases. Gemdale Corp., the fourth largest, slid 7.8 percent to 13.20 yuan. The Shanghai property index slumped 5.4 percent, the most since Aug. 31.

Property stocks have slumped this week after the Xinhua News Agency reported the government will target “excessive” growth in property prices in some cities. That follows the cabinet’s statement last week that it will re-impose a sales tax on homes sold within five years, after cutting the period to two years in January.

“We’re at the start of an all-out crackdown on the property market,” said Wang Jia, an analyst at Industrial Securities Co. in Shanghai. “The current speed of gains in property prices cannot be sustained. Local governments may also work out their own policies targeting house prices.”

Dec. 31 (Bloomberg) -- Li Nan has real estate fever. A 27- year-old steel trader at China Minmetals, a state-owned commodities company, Li lives with his parents in a cramped 700- square-foot apartment in west Beijing.

Li originally planned to buy his own place when he got married, but after watching Beijing real estate prices soar, he has been spending all his free time searching for an apartment. If he finds the right place -- preferably a two-bedroom in the historic Dongcheng quarter, near the city center -- he hopes to buy immediately. Act now, he figures, or live with Mom and Dad forever. In the last 12 months such apartments have doubled or tripled in price, to about $400 per square foot.

“This year they’ll be even higher,” says Li in the Jan. 11 issue of Bloomberg BusinessWeek.

Beijing, China (CNN) -- When Crystal Zhang decided to buy a house last August, it seemed like a no-brainer.

For years, she had been spending a big chunk of her salary renting a studio apartment in Beijing, where she works as a mid-level executive in a multinational company. But her landlord kept hiking the rent, so she found a second-hand apartment and plunked 640,000 RMB (nearly US$100,000) as 52 percent down payment for a new home. She now lives in a cozy, one-bedroom flat and sets aside 25 percent of her monthly salary to pay for mortgage. "I hope to pay all up in five years," says Zhang. "By then I can start making some other investments."

Bloomberg)— Chinese Premier Wen Jiabao said the government will cool property prices, resist pressure for the yuan to appreciate and keep inflation at "reasonable" levels.

"Property prices have risen too quickly in some areas and we should use taxes and loan interest rates to stabilize" them, Wen said yesterday in an online interview with the official Xinhua News Agency. China will "absolutely not yield" to calls for currency gains, he said.

China's property prices climbed last month at the quickest pace since July 2008, adding to concern that record lending and inflows of money will inflate asset bubbles in the world's fastest-growing major economy. Central bank adviser Fan Gang said Nov. 18 that the nation needs to be on alert for stock, real-estate and commodity bubbles as global capital flows into emerging economies.

Two days ago, on Christmas Eve, I was back with Chris Gelken on China Radio International talking about the hot topic of recent weeks, whether there’s a bubble in country’s real estate sector — and if so, what to do about it. We covered some good ground in an hour-long discussion, and I highly suggest that anyone who has been following my blog posts on the subject might want to listen in by clicking here (and selecting the first hour).

Some of the more important points discussed include:

• The main driver of mounting housing prices in China isn’t short-term speculation (“flipping”) but longer-term stockpiling of empty apartments as a “store of value,” like gold.

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.

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

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.

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.

A year after China unveiled a powerful stimulus to encourage home buyers to take out mortgages in a troubled property market, real-estate sales may be getting a boost from concerns that the government will withdraw some of those measures by the end of the year.

Conversely, such concerns have pressured shares of Chinese property developers traded in Shanghai, Shenzhen and Hong Kong over the past few days and were continuing to weigh on them Tuesday.