China property market - Serious concerns emerge !

[GoFlyKiteNow]

China swamped with massive supply of commercial office space

Saturday 13th February, 2010

Office towers are bearing the brunt of a massive property development cycle raging through China.

China is heading for a property crash as oversupply looms in major cities across the country.

Commercial office towers, shopping malls, and international hotels have been mushrooming for years. The global financial crisis has only been a temporary interruption as low-interest loans flood the country to stimulate development.

China's economy is running at around 8% per annum in 2010, down from the heady 11% to 12% of the years before the current financial crisis.

Chinese conglomerates and government-owned entities have been pouring billions into development on perceived demand which is not yet materialising.

Many office towers across the country are empty, and thousands of others only part-filled. Hotels have been struggling with occupancies and room rates as an ever-ending supply of new product pours into the market. New hotel openings are being heralded by the week. Shopping malls on average are carrying vacancy rates of around 40%.

Many property experts believe a crash is on the way, others simply agree a bubble is forming.

The two biggest problem-cities are China's largest, Beijing and Shanghai.

Jack Rodman a long time investor and advisor on global distressed property reckons the commercial office tower vacancy rate in Beijing is 50%. Shirley Hu of CB Richard Ellis says commercial office space will increase in Beijing by 16 million square feet this year, and in Shanghai by 20 million square feet, driving up vacancy rates to approximately 30%.

"I don't think there's been much net absorption at all. I believe there's a very large and very real problem here," Rodman told the China Daily

Hedge fund manager James Chanos says the country’s property market is in a bubble.

“There’s a monumental property bubble and fixed-asset investment bubble that China has underway right now,” Chanos said in a January 25 Bloomberg Television interview.

“You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land, not even desirable plots of land -- in Beijing to astronomical rates,” Patrick Chovanec, an associate professor in the School of Economics and Management at Beijing’s Tsinghua University told Bloomberg. “At the same time you have 30%-plus vacancy rates and slumping rents in commercial property so it’s just a case of when you recognize the losses, or don’t.”

 

[Sperminator]

China swamped with massive supply of commercial office space

Saturday 13th February, 2010

Office towers are bearing the brunt of a massive property development cycle raging through China.

.......


“You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land, not even desirable plots of land -- in Beijing to astronomical rates,” Patrick Chovanec, an associate professor in the School of Economics and Management at Beijing’s Tsinghua University told Bloomberg. “At the same time you have 30%-plus vacancy rates and slumping rents in commercial property so it’s just a case of when you recognize the losses, or don’t.”

Dear GoFlyKiteNow,

What do you think would be a best approach for the Property Investors in China?

If the Property Market is forecast to be a slump in China, for Beijing and Shanghai, then doesn't it make sense for the Property Investors to quickly liquidate their investments, and in anticipation of the frenzy sales during the bubble burst?

There is always a cyclic boom and bust.

The real Property Investors would have already sold off at least 80% of their holdings, and turn them into cash, and awaiting for the bust...

When there is a bust, it's the nicest locations, best buildings, their pricing would also tumble due to no demand, and frenzy selling...

So, the property investors with the dough, would buy in while everyone is selling (as most of the property speculators/investors in China are highly leveraged with Bank Loans, etc...)

I see this as an opportunity... and that's the beauty of life, those who can see the opportunity would be able to capitalize on it.

would anyone here be investing in China?

 

[GoFlyKiteNow]

Dear GoFlyKiteNow,

What do you think would be a best approach for the Property Investors in China?



I see this as an opportunity... and that's the beauty of life, those who can see the opportunity would be able to capitalize on it.

would anyone here be investing in China?

Well..before you can buy in, you have to first wait for the bubble burst and prices fall..Right?..and you buy with the capital you have ready with you..right?

Now, till then, where do you keep that capital?..and what do you think will happen to your capital if the bubble bursts there in China?..

If your capital is kept in shares, then its value will immediately go down..
if your capital is locked n a property, its value also will be down..

If you got it in cash, then it all depends, in what cash you have it..

The risk is there,,spilling over and creating downsides all over the region..
and reducing the purchasing power of your present capital which you have kept ready for such opportunities...

So, it all depends on where your investing capital is kept in reserve.

 

[Sperminator]

Well..before you can buy in, you have to first wait for the bubble burst and prices fall..Right?..and you buy with the capital you have ready with you..right?

Now, till then, where do you keep that capital?..and what do you think will happen to your capital if the bubble bursts there in China?..

If your capital is kept in shares, then its value will immediately go down..
if your capital is locked n a property, its value also will be down..

If you got it in cash, then it all depends, in what cash you have it..

The risk is there,,spilling over and creating downsides all over the region..
and reducing the purchasing power of your present capital which you have kept ready for such opportunities...

So, it all depends on where your investing capital is kept in reserve.

Dear GoFlyKiteNow,

I really appreciate your keen sense of financial intelligence, and intellectual discussions I have with you during these period.

First I would like to wish you a Happy Chinese New Year, and may this year, your Career progress smoothly, and wishing you Good Health, Good Wealth, and Happiness throughout this year.

Taking your advise, I think keeping the CASH Reserves should not be in Shares.

Agreeing with you, I believe keeping the CASH values Reserves in the properties may not be a good idea, however, exiting when the price is high enough (or have met your investment objective is a wise idea)

For CASH Reserves, since when we are buying in or out in CHINA Properties, the requirements are RMB.

So, if you possess USD, SGD, EURO, or any other currencies, the first thing you have to do is to change it to RMB, before you could buy the China Properties... thus, when you sell out your properties, it'll be in RMB.

In this case, point in our discussion, the currency we will hold would be RMB.

Another recommendation, and idea.

Do you think with the CASH RESERVE, using the CASH Capital from the selling of the Properties, to BUY GOLD as the way to maintain value?

Since if the world or region have a spilling over effect or domino effect on the tumbling of the Currency value due to double dipped depression, currency naturally inflates, and by using GOLD as a hedge on value, don't you think it's a good idea?

On top of that, China Government is not planning to budge, and reduce the value of RMB in this year, to maintain it's competitive edge on it's exports pricing against the world.

So, what I understand about the RICH TYCOONS, they have already liquidated their properties holdings in Hong Kong, and is aiming at China's properties

For your analysis and comments.

 

[GoFlyKiteNow]

Dear GoFlyKiteNow,

I really appreciate your keen sense of financial intelligence, and intellectual discussions I have with you during these period.

First I would like to wish you a Happy Chinese New Year, and may this year, your Career progress smoothly, and wishing you Good Health, Good Wealth, and Happiness throughout this year.

Taking your advise, I think keeping the CASH Reserves should not be in Shares.

Agreeing with you, I believe keeping the CASH values Reserves in the properties may not be a good idea, however, exiting when the price is high enough (or have met your investment objective is a wise idea)

For CASH Reserves, since when we are buying in or out in CHINA Properties, the requirements are RMB.

So, if you possess USD, SGD, EURO, or any other currencies, the first thing you have to do is to change it to RMB, before you could buy the China Properties... thus, when you sell out your properties, it'll be in RMB.

In this case, point in our discussion, the currency we will hold would be RMB.

Another recommendation, and idea.

Do you think with the CASH RESERVE, using the CASH Capital from the selling of the Properties, to BUY GOLD as the way to maintain value?

Since if the world or region have a spilling over effect or domino effect on the tumbling of the Currency value due to double dipped depression, currency naturally inflates, and by using GOLD as a hedge on value, don't you think it's a good idea?

On top of that, China Government is not planning to budge, and reduce the value of RMB in this year, to maintain it's competitive edge on it's exports pricing against the world.

So, what I understand about the RICH TYCOONS, they have already liquidated their properties holdings in Hong Kong, and is aiming at China's properties

For your analysis and comments.

Yes, keeping it in RMB is the best bet..( in case the bubble burst and prices fall..then u can go ahead and buy property , shares cheap ).

Even if there is no crash..and China has a soft landing, your RMB would still be good, becoz, it will not devalued...more likely it will be revalued up by 5%.

so in either case, the RMB is a sure bet, if you are planning forward strategy.

However, there is a possibility that the Chinese govt, at that point in time may introduce higher capital gains tax..to curb the outflow of money. But this may not be a issue as the profit will offset such taxes.

happy new year greetings to you too.

 

[Sperminator]

Yes, keeping it in RMB is the best bet..( in case the bubble burst and prices fall..then u can go ahead and buy property , shares cheap ).

Even if there is no crash..and China has a soft landing, your RMB would still be good, becoz, it will not devalued...more likely it will be revalued up by 5%.

so in either case, the RMB is a sure bet, if you are planning forward strategy.

However, there is a possibility that the Chinese govt, at that point in time may introduce higher capital gains tax..to curb the outflow of money. But this may not be a issue as the profit will offset such taxes.

happy new year greetings to you too.

Thanks for your great advise.

RMB it is!

Wishing you and your family, happiness, great health, great wealth!