Monday, October 27, 2008

China: Significant Policy Change in Property Market - loosening of credit to increase domestic consumption

So the number of real estate deals is down 72% Y-Y during their holiday period. Some people are now taking a "wait and see" approach and are staying on the sidelines. People say that the remaining potential buyers are "marginal" buyers who have to stretch to afford a home.

The government is easing credit requirements to buy property. This should help to sustain real estate prices. Please note, however, that Chinese finance rules say down payments of 30% are being reduced to 20%. I guess they never heard of our 0% down financing here stateside and the wonderful results it has generated :)


Then there is the rumor of U.S. Investment banks selling their chinese owned properties. Chinese politicians/developers are worried that this may cause a drop in commercial real estate values.

My take: There are a few investment plays on China real estate.

XIN - XINYUAN Re: Holdings (real estate development) - It focuses on developing residential projects consisting of multiple residential buildings that include multi-layer apartment buildings, and sub-high-rise or high-rise apartment buildings, as well as auxiliary services and amenities comprising retail outlets, leisure and health facilities, and kindergartens and schools. The company also develops small scale residential properties; and leases certain properties, including an elementary school, a clubhouse, a kindergarten, and parking facilities, as well as offers real estate related services, including landscaping and installing intercom systems. As of December 31, 2007, it completed 14 projects with total gross floor area (GFA) of approximately 1,001,199 square meters; 7 projects with a total GFA of 1,069,144 square meters under construction; and 6 projects with a total GFA of 1,452,013 square meters under planning. The company was founded in 1997 and is headquartered in Beijing, the People�s Republic of China.

EJ - E House Holdings - Basically a real estate broker. More volume = more profits (once they cover their costs) This is the safer play on chinese real estate development. It primarily offers real estate agency services to real estate developers of residential properties. The company also provides real property brokerage services, and intends to provide listing and brokerage services, which include sales and rentals. E-House (China) Holdings focuses its secondary real estate brokerage services in three metropolitan areas within China, including Shanghai, Wuhan, and Hangzhou, as well as in Hong Kong and Macau. Its real estate consulting services include land acquisition consulting and real estate development consulting; and other consulting services to investors interested in purchasing businesses with land or other real estate assets, as well as to banks, real estate trade associations, and governmental property and planning agencies. The company�s real estate information services comprise the CRIC system, which supports its primary and secondary real estate services, and consulting and information services. The CRIC system consists of real estate sales data in China covering information on land, residential, office, and commercial spaces, as well as real estate related advertisements. The company was founded in 2000 and is headquartered in Shanghai, the People�s Republic of China.

Dan Ross

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