Wednesday, October 19, 2005

7) Property Investments

This is not meant to be some academic or professional study of the property market in China but the stats are pretty scary, for those who are heavily invested, you might like to consider disinvesting. Much of the boom has been concentrated on the coastal and southern cities particularly Shanghai, Shenzhen, Chongqing etc 'cos of the economic boom. (Beijing 's partly due to its capital city status , partly 'cos of the Olympics and partly the tech sector development)

Shanghai may be an extreme example but being arguably the most modernized city in China, its property market may well be a leading indicator for other cities. Ignoring macro factors like the uncertainty of future economic growth and the poverty - wealth gap (income gaps) , it's the micro factors which are sounding the alarm. Declining rental return rates, the skyrocketing prices, the occupancy rates (the sight of blocks of empty property is not encouraging at best) are all discouraging signs of oversupply and the inevitable price pressure that follows. What is interesting particularly when you compare it with mature cities is the huge price differentials between the surburb property prices and the city proper propeerty prices, prices around (for example) Jiading are at least 2 and 1/2 to 5 times cheaper than prices around the city (modern properties that is) , of course that's not quite comparing like with like since it's a Jiading "villa" (a fair sized house) vs a mid-class condo apartment

What's really worrying is the fact that a good % of the investors in new, high class property are foreign investors, who presumably don't intend to occupy these properties and so may be presumed to be looking for rental and capital gains . The trend of rental returns kinda depresses the prospects of the former and the latter may be hampered by a combination of factors like oversupply, limitation of buyers (the relatively high prices of new developments tend to restrict the type of buyers who would form the secondary /resale market) and yuan revaluation (depending on the speed of revaluation, prices may deflate rapidly as a rising yuan means investments are more expensive for foreigners)

For once, the author is pretty glad that she's not in the quandary of disinvesting or waiting for long term gains- after all, age is not necessarily an asset where real estate is concerned. The ultimate decision is yours - just don't say that yours truly didn't give you a heads up!