China Herald: Mixed messages from China´s real estate

Sam Crispin

Follow the lead given by the government, is the key advice by real estate expert Sam Crispin. The market gives mixed signals, where some property developers do well, and others go down. But the government will stay in charge. A report by CKGSB Knowledge.

CKGSB Knowledge:

In reality, the outlook is mixed. Smaller developers are more exposed to market swings than their larger rivals, and are facing ever-tighter liquidity conditions. A period of accelerated consolidation seems likely—though just what shape it takes will depends on how both developers and policymakers respond. “You see the results of the Chinese developers listed in Hong Kong, and they tend to be doing pretty well. But at the same time, you’ve got smaller developers defaulting on bonds or cutting prices,” says Sam Crispin, a longtime China property analyst based in Shanghai. “That suggests there’s a real issue here.”...

“The question is: where have all the buyers gone?” says Crispin. “Because there’s seemingly not as many buyers out there in some places as there used to be.”...

Many developers are keeping an eye on the planned national property registration system in particular. The platform, which will allow authorities to track the home purchases of any individual and their family members, is due to be in place by 2018. “It’s a very powerful tool,” says Crispin. In theory, it could allow watchdogs to sniff out when an official or wealthy individual owns a piece of property far more valuable than what their official salary could afford. Yet similar systems are already in place, suggesting the announcement is more about signaling to property owners to clean up their act. “This must be a warning,” says Crispin.

“‘You’ve got three or four years before this system is in place—so do something about it.’” Crispin thinks the effect will be softer prices in the market for the next three to five years. If that scenario does play out, it is likely to accelerate the trend among developers to focus more on mass-market homes—small and mid-sized homes aimed at middle-class consumers. These projects are less profitable than the luxury condos, says Leung of Moody’s. But developers have already been increasing their proportion because the luxury market is faltering.

In any case, developers will probably continue to focus on mass-market homes because Beijing wants them to, argues Crispin. If they wish to avoid Xingrun’s fate, falling into line with government policy may prove equally important.

“I think there’s a realization from developers that if they are aligned with government policy, then they will get more support from the state, including state-owned banks, land auctions, and so on,” says Crispin. “And if they don’t, then sorry, it’s bye-bye.”

More at CKGSB Knowledge.

Sam Crispin is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form. Sam Crispin recently moved from Shanghai to the UK, to focus on outbound Chinese investments, in his case mostly in real estate.

Are you interested in more experts at the China Speakers Bureau on China´s outbound investments? Do have a look at our updated list.