Over a year has passed since six ministers jointly released
Circular 171 last July to rein in foreign investment in China's
sizzling property sector.
The circular, to some extent, has slowed the entry of
speculative foreign capital, but has had almost no impact on
long-term investors.
The National Bureau of Statistics said on June 19 that foreign
companies poured 22.2 billion yuan into China's property market
from January to May this year, a rise of 89.9 percent
year-on-year.
On the same day, Aetos Capital, a US hedge fund, inked a deal
with the country's largest insurer, China Life, on a $1 billion
investment in China's property sector.
Also on June 19, Glitnir Bankhf, a financial institution from
Iceland, announced cooperation with CGC Overseas Construction Co to
co-develop a residential block in Shenyang, the capital of
Northeast China's Liaoning Province.
"In the short run, macro policies increase business
uncertainties. But in the long run, China's property market will be
more attractive for foreign investors after the bubble is burst,
especially with the renminbi continuing to appreciate," said Eric
Chan, deputy managing director of Savills Property Services
(Beijing) Company.
The high return, experts say, is the driving force behind
foreign funds' strong interest in China's real estate sector.
According to a report by CB Richard Ellis, an international real
estate services firm, the investment returns on office buildings in
Beijing and Shanghai hit 8 percent in 2006, the highest in the
world.
RREEF, a real estate arm of Deutsche Bank, said in a recent
report that the gross profit margin of China's residential
buildings could be as high as 20 to 30 percent, which could beat
that of the US in the future.
"Expecting continued appreciation of the renminbi, foreign
capital is flowing into second-tier cities such as Tianjin,
Hangzhou, Chengdu, Shenyang and Chongqing," the central bank said
in a report on July 31.
Some industry insiders put the amount of foreign capital
swirling in China's second-tier cities at over 100 billion
yuan.
Chengdu, Chongqing, Wuhan and Suzhou are the darlings of foreign
investors. In Chengdu, foreign investors occupy almost half of the
market. Other cities, such as Nanjing, Hangzhou and Ningbo, have
also attracted foreign investors in droves.
"Our focus this year is on the residential sector in China's
second-tier cities," Robert Lie, CEO of ING Real Estate Investment
Management Asia, had once told China Daily. "Among our eight
projects in the country, six are in second-tier cities."
He said his company is optimistic about the economic prospects
of second-tier cities, especially Chongqing, Chengdu and Wuhan in
the western and central regions. Dalian, Qingdao and Hangzhou are
as attractive.
Ronnie Chan, chairman of Hong Kong-based Hang Lung Properties,
said the company will not increase its investments in Shanghai.
Instead, it will pour around HK$20-25 billion into 10 second-tier
cities.
"Because of less competition and the more welcoming attitude of
local governments, foreign investors have sped up their entry into
second-tier cities," said Anna M. Kalifa, head of the Research
Department of Jones Lang LaSalle (Beijing Branch). "And the returns
in second-tier cities are usually higher."
Property prices in second-tier cities are soaring. Beihai, a
small city at the southern end of South China's Guangxi Zhuang
Autonomous Region, has been on the top of a list by the National
Development and Reform Commission (NDRC) for four months in a row
for its skyrocketing property prices.
Bengbu, a city in East China's Anhui Province, also found itself
on the list. The city, ranked 182nd in overall economic strength in
the country last year, appears as No 2 on the chart with a June
growth rate of 9.9 percent.
However, Kalifa doesn't think the property price hike in
second-tier cities is driven by foreign investors. "It is mainly
due to excess liquidity and strong demand in the market."
The local developers, she said, are often more speculative than
foreign investors.
(China Daily August 17, 2007)
