Why property will remain a safe investment - Sam Crispin

Sam Crispin

The Chinese government tries to curtail irrational investments, but domestic real estate is certainly not at the hackblock, says real estate expert Sam Crispin in Knowledge GKGSB. The government cannot afford to kill the goose laying golden eggs, he says.

Knowledge GKGSB:

Driving the rapid price increase are investors piling into the market. A dramatic stock market rout in 2015 in particular left many seeing property as one of the few secure investment options available on the Chinese mainland. 

“There are few investments products that offer the same degree of security as real estate,” says Sam Crispin, CEO of ABP Investment Management in Hong Kong. China’s banks also see property as a secure bet. 

About half of all new lending in 2016 went into real estate, largely through mortgages with bank loans to developers and homebuyers totaling RMB 26.68 trillion ($3.87 trillion). This was up 27% from 2015, according to data from China’s central bank. Agricultural Bank of China, the country’s third-largest lender by assets, had 82% of its new loans go to housing... 

Property development and apartment sales are also key sources of revenue for local governments, so they have an incentive to keep land sales going. According to the Chinese business magazine Caixin, income from the sale of land-use rights totaled RMB 3.75 trillion ($551 billion) in 2016, nearly 30% of the combined annual income of local governments, with some areas depending on sales for as much as 50% of their revenue. 

“Property is the goose that lays the golden egg,” says Crispin. “They (governments) are dependent on that revenue stream—if they lose it what will take its place?” 

A tense standoff lasted for months as the government grappled with a precedent that had national implications. In late December, it was announced that the Wenzhou leases would be rolled over free of charge, which kicked the issue down the road but left the core issue of ownership rights unclear. 

Such uncertainty, long-term, is a destabilizing factor. “[A bursting bubble] would be catastrophic for the Chinese state,” says Crispin. “The government is in control of land sales, the government is in control of construction, the government basically sets prices by approving the pricing of sales… so it’s the government’s fault if it goes wrong. They have no mechanism to cope with [a crisis].” 

Measures implemented in recent years have tried to cool down the market. These include raising minimum downpayments, which can be up to 80% in major cities, and outright restrictions on home purchasing, for example by making it illegal in some places to buy a second apartment.

More at Knowledge GKGSB.

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.

Are you looking for more political experts at the China Speakers Bureau? Do check out this list.   

Chinese investors shun Trump estates - Rupert Hoogewerf

Rupert Hoogewerf

Trump properties might have gotten some extra glamour after their name-giver became president of the United States. But China's rich have historically shown very little interest in the Trump assets, says Rupert Hoogewerf, chief researcher of the Hurun China Rich List, and it is unlikely it's going to change, he tells the New York Post.

The New York Post:

Like much of the luxury market right now, (New York real estate brokers) Maitland and Karadus’ listing struggled even before Trump stepped into the Oval Office. The unit originally went to market with Town Residential in December 2014 for $10 million. After a price cut to $8.95 million it was delisted in October 2015, then went on and off the market at that price with BHS. It just reappeared for $7.5 million. 

While buyers from China are not out of the question — Maitland says a recent Chinese investor said “no” to other neighborhoods and insisted on “Central Park, Fifth Avenue, Madison Avenue, Trump” — they’re less likely. Rupert Hoogewerf, publisher of Shanghai-based luxury magazine the Hurun Report, which tracks the spending habits of Chinese one-percenters, says the Trump name has historically held little appeal for that market. 

“I’ve talked to a lot of [wealthy Chinese] in the past about property in New York and other cities, and nobody has ever come forward and suggested Trump Tower,” he says. Instead, he notes, “it was always talk about new developments.”

More in the New York Post.

Rupert Hoogewerf 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.

Are you looking for more experts on China's outbound investments at the China Speakers Bureau? Do check out this list.  

And the real estate bubble persists - Sara Hsu

Sara Hsu

Efforts by China´s financial authorities to tame its real estate sector failed, mostly because China´s investors have few venues to make money, says shadow banking expert Sara Hsu in the EastAsia Forum.

Sara Hsu:

Government involvement in the shadow banking sector is unclear. In the past, authorities have bailed out failed products such as WMPs, but bailouts are far from guaranteed. Neither is the enforcement of interest, as illustrated by a recent case where New China Trust — in an attempt to recover equity investment from a real estate developer — lost a lawsuit. The equity investment was viewed by industry experts as a loan, since it contained a stock repurchase agreement. But the courts did not support this understanding. Inconsistent bailouts and insufficient support for shadow banking interests renders investment in this sector risky and uncertain. 

But a lack of alternatives has made the shadow banking sector a go-to resource for borrowers and investors alike. The stock market volatility that rocked China in June 2015 still resonates and investment in stocks has not fully recovered from the freefall that took place as the asset price bubble burst. Bond markets are shallow and corporate bonds tend to be overrated. The banking sector is associated with low returns on deposits and is also constrained in lending — it continues to prefer state-owned and larger firm borrowers at the expense of private and smaller firm borrowers. 

China’s efforts to liberalise its financial sector and further open up to market forces have been marginally successful but insufficient in the face of increasing demand for returns and loanable funds. Firms and residents are increasingly financially savvy and wish to reap returns on their savings, but this is especially tough in an economy where interest rates and risk ratings do not always reflect real alpha and beta. As a result, we can expect to see asset price bubbles recur. The shadow banking sector will continue to grow in a climate that is failing to integrate market forces into financial products.

More in the EastAsia Forum.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.  

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Why Chinese find Sydney property cheap - Shaun Rein

Shaun Rein

The observation might be shocking for Australians, but many Chinese find Sydney real estate cheap. Shanghai-based business analyst Shaun Rein explains why in the Daily Reckoning.

The Daily Reckoning:

There are a lot of things said about Sydney. But have you ever heard anyone describe its real estate as cheap? 

Well, I did last week when I spoke to a consultant and researcher based in China, Shaun Rein. He’s also the author of two books on China. He deals with a lot of wealthy Chinese businessmen. 

And he told me that for them, Sydney is cheap. That’s because real estate prices in Shanghai and Beijing at the top level can hit $20,000 to $30,000 a square metre. Even US$3 million doesn’t get you into the best part of town. 

In the US and Australia it can get you a mansion on the beach. 

Not only is Sydney priced OK for China’s rich, it has a thing that’s pretty rare in the big cities of China these days: blue sky. 

That’s because the pollution in China is so bad it’s toxic. The air in China’s mega cities is so rancid it’s breaking world records. ‘Smog days’ are declared to keep kids from going outside, or to school. 

It’s driving wealthy Chinese buyers to put their families out of harm’s way. That means buying here. And Chinese pollution is a problem, according to Shaun, that will take 10–15 years to solve. 

So don’t expect the money to slow down anytime soon.

More in the Daily Reckoning.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch touch or fill in our speakers´ request form.

Are you looking for more experts on China´s outbound investments? Do check out this list.  

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How China´s rich diversify their wealth globally - Rupert Hoogewerf

Rupert Hoogewerf

China rich-list founder Rupert Hoogewerf joins CNBC News to explain how China´s rich diversity their wealth globally: with a strong focus on real estate, the US. The anti-corruption drive has only a minor effect, he says, as 99% of the rich have not been hit.

Rupert Hoogewerf 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.  

Are you looking for more experts on China´s outbound investments? Do check this list.

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Diversification helps profits real estate firms - Sara Hsu

+Sara Hsu

Dropping housing prices have put pressure on real estate firms. But while smaller companies might fail, larger ones try to remain profitable by sometimes daring diversification of their investments, writes financial analyst Sara Hsu in the Diplomat.

Sara Hsu:

Diversification has helped the largest companies maintain their financial performance. Dalian Wanda, which purchased AMC Cinemas in 2012 and revealed plans to build a film studio in Qingdao in 2013, expanded into the O2O (online to offline) e-commerce market this year, forming a venture with Baidu and Tencent. Wanda took the largest ownership of the new firm, with a 70 percent stake. Vanke signed off on a venture with the Carlyle Group to set up a financial platform for the sale of long-term commercial property assets. Vanke is the largest real estate developer in China, and profit margins remain healthy, at 23.8 percent, only 1.1 percentage points less than in 2013. 

Evergrande Group diversified into grain and oil, announcing plans to invest more than 100 billion RMB ($16 billion) in commercial agricultural ventures in Inner Mongolia and Heilongjiang. The firm will market its food products as safe, in contrast to some products that were found to be tainted by non-food or harmful materials. Evergrande also has a 5 percent stake in China’s Huaxia Bank and launched its own bottled water brand in January of this year. Evergrande continued to experience some growth in recurring net profit in the first half of 2014. 

Most real estate companies are unable to participate in these types of large-scale ventures and are looking to destock in 2015, with a heavy emphasis on boosting sales to combat excess supply. Excess housing stock exists in more than one-third of Chinese cities. Developers are also increasingly looking to the internet and big data analysis as a marketing channel. A new trend in the real estate industry for 2015 will also be the sale of small apartments that cater to younger buyers. 

The slowdown in the real estate sector has put downward pressure on GDP growth. The Chinese government will be hoping that improvements in the sector contribute to a growth revival in 2015.

More in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you interested in more financial experts at the China Speakers Bureau? Do check our latest list.  

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What will drive growth after real estate? - Arthur Kroeber

Arthur Kroeber

Housing is still a key factor in China´s economy, but is no longer the main driver. Economist Arthur Kroeber looks in FNArena at what can replace real estate, and what the decline means for economic growth.

FNArena:

...The best the government can do is smooth the downturn, it cannot cause construction to re-accelerate, and attempts to keep housing sales at an artificial high level would be disastrous. We believe the authorities are alive to this risk. Their efforts to support a flagging property market this year were fairly modest, suggesting that they are willing to let sales and prices drift down so long as the moves are not too abrupt. 

It is clear, however, that the housing´s shift from a growth driver to a zero or negative growth contributor means that tthe government´s aim to maintain GDP growth at 7% through 2020 is unrealistic, and will have to be revised down. - perhaps as early as next year. This outlook also underscores the urgency of deregulatory reforms, especially in services, that can help build a new economic growth driver to replace the sputtering real estate engine. 

Commodity prices have already suffered from China´s construction slowdown of the last two years. It is likely they will fall further. In the past, China´s steel consumption tracked housing constructions quite closely, and the industry´s current forecast of 1% growth in total Chinese steel use over 2014-15 reflects a recognition of the housing peak.

More in FNArena. 

Arthur Kroeber 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.

Are you interested in more financial experts at the China Speakers Bureau? Do check out recently updated list.  

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How can China reduce its debts? - Sara Hsu

China has a longstanding tradition in creating huge debts, and the burden has been growing over the past year, as the government decided to bail out failing companies, rather than let them collapse. That system has to change, writes financial analyst Sara Hsu in the Diplomat.

Sara Hsu:

For the past year, analysts have noted that China’s debt has been steadily mounting. Currently, the debt to GDP ratio sits at about 250 percent. Much of the growth in debt originated from climbing local government debt, undertaken in order to build up infrastructure, as well as from increasing corporate debt, stemming in large part from the real estate sector. What are some potential resolutions to China’s debt woes? 

Local governments appear to have some resolution in sight, as they can now roll over their debt into municipal bonds. Although this does not address structural issues that would rule out the incursion of new debt going forward, it does provide significant relief to local governments that participate in the program. Many local governments, via their associated financing vehicles, have taken on new debt just to repay existing debts, and are therefore in dire need of a legitimate way in which to roll over their existing loans... 

At this point, it seems inevitable that some smaller property developers will collapse, but it is also likely that some developers will receive a bailout. Those who obtained trust loans and cannot repay them, for example, may find their funds paid by the local government or another entity, if history is any guide. Other developers may turn to the informal financial market of family, friends, and private money lenders to roll over their debt. 

Unfortunately, these resolutions to China’s debt woes are second-best. A better alternative would be to improve the bankruptcy process and allow companies to declare bankruptcy so that debt and assets can be dealt with efficiently. Even in the case of collapsed firm Zhejiang Xingrun Real Estate Co, local officials skirted the stigma of bankruptcy by dealing with winding down debt and assets themselves, rather than going through a more streamlined bankruptcy process. In cases where firms only face liquidity, rather than solvency, issues, the provision of short-term emergency loans (not bailouts) to less risky firms with conditionality may prevent liquidity issues from becoming more serious. 

Although China’s debt debacle has not yet caused a financial crisis, its coping mechanisms are less than ideal. Future reforms should remove government accountability for financial and non-financial firm failures and enhance the options facing troubled firms. These reforms are not a given, and are important changes to make as China’s economy becomes more market-oriented.

More at the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you interested in more financial experts at the China Speakers Bureau? Do check out our latest list.

Earlier this week, Sara Hsu joined the China Hangout and discussed the current state of the country´s financial situation.

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New policy: registering real estate - Sara Hsu

+Sara Hsu 

The newly established Bureau of Real Estate Registration might signal a new track for the central government to control its unruly real estate sector, writes financial analyst Sara Hsu in the Diplomat. "The real estate registration system will increase transparency in property rights, which is certainly an improvement over the murkiness of today’s diverse and localized registration platforms."

Sara Hsu:

China has recently established a new Bureau of Real Estate Registration as part of its effort to enhance land management regulations. The bureau is charged with drafting and enforcing regulations on land management and property registration, resolving land disputes, and issuing certificates for forest land and island use. The creation of this institution complements draft legislation on real estate registration and a national property audit launched by the National Audit Office under the direction of the cabinet to enhance property rights and reduce corruption associated with land sales. 

The Bureau of Real Estate Registration will roll out a national system of real estate registration pending final approval of a draft proposal circulated by the State Council. The real estate registration system will not be transparent to the public, but will be visible to government officials who need the information for legal and financial matters. This will include the land, public security, civil affairs, tax, business, finance, audit, statistics and other departments. According to the draft legislation, the system will combine data submitted at the national, provincial, municipal, and county levels. Real property, including collectively owned land, homes and buildings, forests, land including farmland and grasslands, construction land use rights, general land use rights, water use rights, easement, mortgages, and other real estate rights will be registered... 

A pilot program for property taxes levied on housing in Shanghai and Chongqing was initiated in 2011, but expansion of this program has been stalled in order to focus on generating national property tax legislation. The pilot programs have been criticized for failing to slow down a heady increase in property prices. However, it was noted that the pilot programs had limited impact in slowing the property market due to restrictions and very low tax rates. 

While there no guarantee that the real estate registration system will stop the practice of insufficiently compensated land takings, the lure of property tax revenue, if it is large enough, may wean local governments away from one-time land sales in favor of ongoing tax income. What is more, the real estate registration system will increase transparency in property rights, which is certainly an improvement over the murkiness of today’s diverse and localized registration platforms. The Bureau of Real Estate Registration and its associated pending regulations therefore show promise, and are key components of the leadership’s reform agenda.

More in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this recent list. 

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Real estate prices will drop, and people will buy - Sam Crispin

Sam Crispin

After twenty years of covering real estate in China, Sam Crispin has seen it all. He is not worried by the recent drop in house prices. "When prices drop, people will buy," the UK-based real estate consultant tells in KBIA.

KBIA:

Sam Crispin, who has spent two decades following China's real estate sector, thinks prices will gradually drop, and people, eventually, will buy. He cites the history behind Shanghai's Pudong New Area, which had huge vacancy rates in the 1990s.

"The whole of Pudong was a bit of a basket case," Crispin says, sitting in an office in the area's Lujiazui financial district, overlooking the cruise ship terminal along Shanghai's muddy Huangpu River. "Fifteen years ago, not many people wanted to make the move, but now we see some of the most desirable, most expensive real estate here in Pudong. It's been a massive success for Shanghai."

Of course, Shanghai is a prestigious, coastal city and a magnet for the wealthy and ambitious, dramatically different from Wuxi. As for Crispin, earlier this year, he moved home to England for family reasons.

He says no one should read too much into this, but he has sold all but one of his properties in China. He says he's looking for better rent revenue.

"I can see the capital growth is slowing and it's time to go and invest elsewhere where there might be better income," Crispin says.

More in KBIA.

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 now covers Chinese outbound investments from the UK. Are you interested in more experts on China´s outbound investments? Do check out our recent list. 

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Mixed messages from China´s real estate - Sam Crispin

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. 

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China´s real estate: no panic needed - Sam Crispin

Sam Crispin

Government interference, dropping prices, dropping occupation rates: China´s real estate has always been good for some panic in the media headlines. But there is no reason for panic, says real estate expert Sam Crispin with 20 years of China experience under his belt in GPB News, although some diversification is in order.

GPB news:

Sam Crispin, who has spent two decades following China's real estate sector, thinks prices will gradually drop, and people, eventually, will buy. He cites the history behind Shanghai's Pudong New Area, which had huge vacancy rates in the 1990s.

"The whole of Pudong was a bit of a basket case," Crispin says, sitting in an office in the area's Lujiazui financial district, overlooking the cruise ship terminal along Shanghai's muddy Huangpu River. "Fifteen years ago, not many people wanted to make the move, but now we see some of the most desirable, most expensive real estate here in Pudong. It's been a massive success for Shanghai."

Of course, Shanghai is a prestigious, coastal city and a magnet for the wealthy and ambitious, dramatically different from Wuxi. As for Crispin, earlier this year, he moved home to England for family reasons.

He says no one should read too much into this, but he has sold all but one of his properties in China. He says he's looking for better rent revenue.

"I can see the capital growth is slowing and it's time to go and invest elsewhere where there might be better income," Crispin says.

Seems like a good time to diversify.

More in GPB news.

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.   

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Turning point in the real estate market - Wei Gu

+Wei Gu 

WSJ wealth editor Wei Gu discusses the turning point in China´s real estate market with JP Morgan economist Zhu Haibin. While weak demand and oversupply leads to an adjustment, no price collapse is expected like in the US real estate crisis.

Wei Gu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you interested in more contributions from Wei Gu, check our list here. Or visit our list of financial experts at the China Speakers Bureau.

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