Mish, thanks for the article. And here is what I thought.
The article has a valid point in pointing out wide-spread showy project/buildings built in China. Northeast part of China (where Dalian is located) is taking the lead in this. Having said that, I don't think the current real estate boom in China is led by those unpractical, show-off projects. This real estate boom is led by mostly residential apartment building, especially middle- or high-end residential building.
Another valid point the article mentioned is that all the land are controlled by the Chinese gov. But this can also be played to China's advantage, starting early this year, the land is in very short supply due to the central gov. restrict policy (only State Council in Beijing has the right to approve new land use). So those unfinished buildings (in Chinese called "Lan Wei Lou") in a lot of cities, which have sit there for long time, are selling like hot cake<g>.
"Lan Wei Lou" like the article talked about started to appear since 1992 when Deng made his famous South Tour. Much excess construction all over China was started then. And when 1997 Asian currency crisis came, a lot of these excess construction could not obtain enough funding any more, and became "Lan Wei Lou".
since the last 3-4 years, Shanghai Municipality government has started to clean out the unfinished buildings. quite a few international big banks/investment companies (including ING, Merril-Linch, Morgan-Stanley, and Goldman Sach...) are interested in buying them. The rate of return on these building is anywhere bet. 100-300%. Till the end of 2003, more than 2 million square meters (1 square meter equals about 3.5 square feet) of unfinished buildings in Shanghai alone have already been acquired and finished. The similar trend also happens in other cities, like in Guangzhou, Beijing, Wuhan, Haikou... Since no/few new land can be acquired, so the developers have to go back to the land under unfinished buildings.
BTW, I read that by some estimates, there are 30,000 real estate developers in China now.
On vacancy rate, the National Statistic Bureau said, as of the end of 2003, 46 percent of finished residential apartment buildings have not been sold yet. But why so many developers are still building more? According to Japanese, in Japan, the breaking point for profit for real estate developers is 8%. That means as long as there are 8% of what they built sold, they do not loss money. Anything above it, developers make profit. And in China, as long as they sell 60%, the developers will make money, since the profit margin is anywhere bet. 40-50%.
Shanghai official report out at the end of Sept., claimed that the vacancy rate for commercial residential building in Shanghai is 2.7%, and the rental rate is 7.2%. And some Netizens complained that the official vacancy rate is too low, and it may be as high as 10%. But in any case, is still far below the 28% of collapsing point<g> in Denver. And some expert in Shanghai also said that although 2.7% official vacancy rate seems a little too low, but it should be certain that the actual vacancy rate is within the reasonable rate of 5%-8%. (my interpretation: so no bubble yet<g>) As for the rental rate, the officials said if include those on-the-market residential buildings and governmental-owned buildings; the rental rate will be around 20%, which is lower than the international standard of 30%.
That article is so certain that China is having a real estate bubble, but seems no solid data to prove it? And it said “China now is between denial and worry". No any Chinese officials said there is a bubble yet, where the denial comes from?
Personally, I think a recession before 2009 caused by real estate bubble burst in China is very small. Because;
1) it is not certain yet whether there is a real estate bubble in China now, no solid data to prove that; Even if there is one, it is most likely not on national level but only on local level;
2) starting from this year, no new land can be approved by local officials for any kind of real estate development, they have to be approved by the National State Council and a lot of land which already been approved in the last couple of years now have been taken back by the central gov.; and this is the reason for why many developers are interested in those unfinished building which already sit there for multiple years even though they have to go through a lot of legal trouble;
3) No/few official loans. So only those who have access to underground funding or those who have foreign funding source can develop new projects.
Due to the loud voice of "real estate bubble is going to burst in China" at the international level (Andy Xie himself wrote two pieces on this in one single month<g>, the state Construction Ministry has just finished a comprehensive report on the real estate industry in China, to contradict Andy Xie, etc, and said their calling is too extreme, and may be self-indulging. And the report predicts that the real estate market in China will be steadily increasing in the next 10 years. The report is under the review of the National State Council, so no details yet.
China just had a State Summit to scientifically develop China's Real Estate yesterday in Beijing. And here is the online report, although it is in Chinese only. Plenty of talking heads attended the summit.
house.people.com.cn
China takes serious of what might be happening in its real estate market, and definitely do not want to repeat what happened in 1998.
Maybe this is not what you looking for?<g> |
