Table of Contents:

Big part of Chinese economy:

The real estate market is one of the main engines of growth in the Chinese economy.  But over the past year (2008), growth in Chinese real estate has slowed from 11% annually to just 7%.  Is this the begining of a slowing period? Or a minor slowdown?  One factor leading the optimists is that the recent slowdown is related to government measures to restrict credit (to fight inflation), and that the measures could be undone as quicky as they were put in place...thus leading to a quick rebound in the industry.

Driver of Growth:

Migration of massive population in country-side to the cities.  10's of millions of people each year.

Links to the global economy:

The construction market in China is very important for the global commodities markets for such metals as steel, iron ore, and copper.  If the Chinese real estate market falls flat, expect a fall in demand for such commodities from global producers such as Brazil, Australia, etc..

News:

Blackstone eyeing Chinese real estate:   Blackstone Group and other buyout funds are competing to buy four commercial buildings in Shanghai for as much as $1 billion. The buildings, which includes the Bank of Shanghai Tower, are being sold by Super Ocean Group. Reuters (8/13/2008)

A real estate agency closing hundreds of branches while the owner of another absconds; property developers cancelling fundraisings and debt spreads widening dramatically; house prices slumping – these sound like recent tales from the US housing market.

Yet these events have happened in the past three months in China, as some parts of the country’s housing market have shown signs of real stress.

Shares in many of China’s largest listed property developers have fallen more than 50 per cent from their highs of last year in the face of investor fears that some developers might be forced into bankruptcy.

After a couple of years of rapid investment, Chinese developers have been caught between two forces – government efforts to slow economic growth and the global credit crunch. The authorities have taken unusually strong measures to limit credit growth and have promised to introduce a tough new policy to reduce developers’ holdings of unused land.

Partly as a result of these measures, the volume of property transactions has fallen sharply since November and, in the two main cities in southern China, Shenzhen and Guangzhou, prices have also slumped.

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