Outsiders gobble up pricy houses in big cities
By Zhang Ran (China Daily)
Updated: 2006-05-15 09:23
Visualize this: Shanghai as three concentric circles. In China''s richest city, the foreigners live in the inner ring, outsiders in the next and natives in the outermost.
That''s how Zou Minsheng, editor of a local Shanghai paper and a man who was born and lived in the city for almost 50 years, sees it.
Exaggeration?
One just has to crunch these numbers in Beijing to get a feel for what Zou is talking about: A real estate report released last month says that more than half the homes sold in the capital last year were bought by people from outside the city.
That figure includes purchases by overseas buyers, who bought 13 per cent of the more expensive homes, the Chinese Academy of Social Sciences (CASS) says in its annual real estate report.
"With its special status as the nation''s capital, Beijing has increasingly become home to people from other provinces and municipalities, as well as from abroad," the report says.
Tracking the movement of foreign capital, it is not difficult to discover that the country''s real estate has a magnetic pull for overseas investors.
The world''s leading institutional investors seem to be tripping over each other to invest in portfolios covering all types of property, including publicly traded or privately held real estate companies, as well as physical assets.
-- In March, Morgan Stanley said it would direct US$3 billion into the sector this year; its total investment in property over the past five years was US$1.5 billion.
-- A month later, Morgan Stanley Real Estate opened a Shanghai venture.
"With our team now permanently in Shanghai, our total capital commitment in China will continue to grow and we will continue to make creative, landmark property investments," says Alasdair Morrison, chairman of Morgan Stanley Asia.
-- In January, Credit Suisse Group-affiliated DLJ Real Estate Capital Partners and China Renaissance Capital Investment, as well as the US funds SIG and Farallon Capital, signed an agreement with Beijing Tianhong Group, a major developer in Beijing, for direct investment in real estate.
Three months later, the four funds signed a strategic agreement with Shanghai based E-house China, a leading domestic real estate service company, for collaboration.
"Foreign institutional investors are mainly interested in high-end office buildings," says James A Clark, head of REIT Optimisation Group with Jones Lang LaSalle Asia.
A report by CB Richard Ellis says that the average sale price for office space in Beijing rose by 7 per cent in 2006 to US$2,325 per square metre. Average rental rates are also growing by the same rate.
-- Morgan Stanley Real Estate and Shanghai Dragon Investment bought a 38-storey office building in downtown Shanghai for US$90 million in September.
-- Last month, Goldman Sachs acquired Bai Teng Tower in Shanghai for US$108 million from CapitaLand, a leading Singapore-based, publicly listed property developer.
Why is foreign capital so eager, despite uncertainty in the overheated market that is worrying many officials and domestic economists?
"It''s because China''s economy is growing rapidly. Look back into world investment history capital always pursues the developing markets," Jones Lang LaSalle''s James says
Hefty price gains in Shanghai, Beijing and other major population centres will not scare off global investment, James insists, because there is a fundamental demand in the market. "This is driven by the economy, and the long-term need for houses and offices in such a populous country."
Based on this logic, he believes second-tier cities in China hold enormous potential, similar to that previously seen in Shanghai and Beijing. "There is much more space for growth in such cities."
In this respect, most foreigners'' attitudes to China''s real estate market are similar to their view of the stock market, which is much more optimistic than domestic investors.
In the long term, they are confident about the country''s economic prospects. In the short term, the possibility of a rising yuan is a factor.
Lending curbs
Housing has become so expensive in China that seven out of 10 urban families cannot afford their own homes, Xinhua News Agency says.
And in Beijing last year, nearly a quarter of the homes approved for sale were priced above 8,000 yuan (US$986) per square metre, an increase of 4.2 percentage points year-on-year, according to the CASS report.
The central bank certainly sees the real estate industry as absorbing too much of the country''s capital, which is why it wants to tighten lending.
"Real estate financing is making up a bigger and bigger share of the country''s financial sector," Wu Xiaoling, deputy governor of the central bank, told a seminar early this month. "We must pay close attention to developments in both the real estate industry and home financing sectors."
According to Wu, Chinese bank loans to the real estate sector stood at 3.07 trillion yuan (US$380 billion) by the end of 2005, accounting for 14.84 per cent of all renminbi lending by China''s financial institutions. This is equivalent to 16.75 per cent of the country''s gross domestic product (GDP) in 2005.
Loans to individual house buyers by China''s commercial banks were valued at 1.84 trillion yuan (US$230 billion) last year, accounting for 8.9 per cent of the banks'' total renminbi lending and equivalent to 10 per cent of the GDP.
On April 28, the central bank announced that the benchmark rate for one-year loans would rise to 5.85 per cent from 5.58 per cent, up 27 basis points. Following the central bank''s announcement, the Public Housing Fund (PHF) raised mortgage rates for individual house buyers by 18 basis points from May 8.
Experts point out the rate adjustment is the most effective way to drive speculative capital out of an overheated real estate market.
With the government curbing credit, the real estate industry might have to slow down.
"But as land is in short supply, house prices will not stop rising," says Yang Shen, former president of the China Real Estate Association.
Few foreign investors believe the interest rate adjustment will curb real estate development, especially in the expensive office building sector.
For them, growth is inevitable.
Updated: 2006-05-15 09:23
Visualize this: Shanghai as three concentric circles. In China''s richest city, the foreigners live in the inner ring, outsiders in the next and natives in the outermost.
That''s how Zou Minsheng, editor of a local Shanghai paper and a man who was born and lived in the city for almost 50 years, sees it.
Exaggeration?
One just has to crunch these numbers in Beijing to get a feel for what Zou is talking about: A real estate report released last month says that more than half the homes sold in the capital last year were bought by people from outside the city.
That figure includes purchases by overseas buyers, who bought 13 per cent of the more expensive homes, the Chinese Academy of Social Sciences (CASS) says in its annual real estate report.
"With its special status as the nation''s capital, Beijing has increasingly become home to people from other provinces and municipalities, as well as from abroad," the report says.
Tracking the movement of foreign capital, it is not difficult to discover that the country''s real estate has a magnetic pull for overseas investors.
The world''s leading institutional investors seem to be tripping over each other to invest in portfolios covering all types of property, including publicly traded or privately held real estate companies, as well as physical assets.
-- In March, Morgan Stanley said it would direct US$3 billion into the sector this year; its total investment in property over the past five years was US$1.5 billion.
-- A month later, Morgan Stanley Real Estate opened a Shanghai venture.
"With our team now permanently in Shanghai, our total capital commitment in China will continue to grow and we will continue to make creative, landmark property investments," says Alasdair Morrison, chairman of Morgan Stanley Asia.
-- In January, Credit Suisse Group-affiliated DLJ Real Estate Capital Partners and China Renaissance Capital Investment, as well as the US funds SIG and Farallon Capital, signed an agreement with Beijing Tianhong Group, a major developer in Beijing, for direct investment in real estate.
Three months later, the four funds signed a strategic agreement with Shanghai based E-house China, a leading domestic real estate service company, for collaboration.
"Foreign institutional investors are mainly interested in high-end office buildings," says James A Clark, head of REIT Optimisation Group with Jones Lang LaSalle Asia.
A report by CB Richard Ellis says that the average sale price for office space in Beijing rose by 7 per cent in 2006 to US$2,325 per square metre. Average rental rates are also growing by the same rate.
-- Morgan Stanley Real Estate and Shanghai Dragon Investment bought a 38-storey office building in downtown Shanghai for US$90 million in September.
-- Last month, Goldman Sachs acquired Bai Teng Tower in Shanghai for US$108 million from CapitaLand, a leading Singapore-based, publicly listed property developer.
Why is foreign capital so eager, despite uncertainty in the overheated market that is worrying many officials and domestic economists?
"It''s because China''s economy is growing rapidly. Look back into world investment history capital always pursues the developing markets," Jones Lang LaSalle''s James says
Hefty price gains in Shanghai, Beijing and other major population centres will not scare off global investment, James insists, because there is a fundamental demand in the market. "This is driven by the economy, and the long-term need for houses and offices in such a populous country."
Based on this logic, he believes second-tier cities in China hold enormous potential, similar to that previously seen in Shanghai and Beijing. "There is much more space for growth in such cities."
In this respect, most foreigners'' attitudes to China''s real estate market are similar to their view of the stock market, which is much more optimistic than domestic investors.
In the long term, they are confident about the country''s economic prospects. In the short term, the possibility of a rising yuan is a factor.
Lending curbs
Housing has become so expensive in China that seven out of 10 urban families cannot afford their own homes, Xinhua News Agency says.
And in Beijing last year, nearly a quarter of the homes approved for sale were priced above 8,000 yuan (US$986) per square metre, an increase of 4.2 percentage points year-on-year, according to the CASS report.
The central bank certainly sees the real estate industry as absorbing too much of the country''s capital, which is why it wants to tighten lending.
"Real estate financing is making up a bigger and bigger share of the country''s financial sector," Wu Xiaoling, deputy governor of the central bank, told a seminar early this month. "We must pay close attention to developments in both the real estate industry and home financing sectors."
According to Wu, Chinese bank loans to the real estate sector stood at 3.07 trillion yuan (US$380 billion) by the end of 2005, accounting for 14.84 per cent of all renminbi lending by China''s financial institutions. This is equivalent to 16.75 per cent of the country''s gross domestic product (GDP) in 2005.
Loans to individual house buyers by China''s commercial banks were valued at 1.84 trillion yuan (US$230 billion) last year, accounting for 8.9 per cent of the banks'' total renminbi lending and equivalent to 10 per cent of the GDP.
On April 28, the central bank announced that the benchmark rate for one-year loans would rise to 5.85 per cent from 5.58 per cent, up 27 basis points. Following the central bank''s announcement, the Public Housing Fund (PHF) raised mortgage rates for individual house buyers by 18 basis points from May 8.
Experts point out the rate adjustment is the most effective way to drive speculative capital out of an overheated real estate market.
With the government curbing credit, the real estate industry might have to slow down.
"But as land is in short supply, house prices will not stop rising," says Yang Shen, former president of the China Real Estate Association.
Few foreign investors believe the interest rate adjustment will curb real estate development, especially in the expensive office building sector.
For them, growth is inevitable.
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