An increasing amount of investment capital is flowing from the
depressed Chinese stock market to the relatively stable real estate
markets in major cities like Shanghai, Beijing and Shenzhen,
according to several banks and property consultancies.
Low- and medium-level residential properties have been
attracting the bulk of the funds diverted from stocks, while luxury
residential houses and office buildings are taking in a much
smaller share, according to a recent survey by Shenzhen-based
Worldunion Properties Consultancy (China) Limited.
The survey, which covers 16 real estate projects in Shenzhen,
Beijing and Tianjin, estimates that funds diverted from stocks
accounted for around 50 percent of the total transactions in low-
to medium-priced residential properties from October 2006 to June
2007, 10 to 20 percent in luxury apartments and about the same
percentage in office premises.
"The volatility of the stock market after the stamp tax hike in
late May has also increased the potential risks and reduced the
returns of stock investment, prompting many risk-averse investors
to shift their focus to the property market," the Worldunion report
said.
"It can be seen from the weak and uncertain performance of the
stock market and the strong performance of property prices in
various major cities," the report said.
Housing prices in 70 large-and medium-sized cities in China
continued to rise in June, up 7.1 percent over the same period last
year, while the Shanghai Composite Index dropped 7 percent that
month.
"From my experience in other markets, the risks of investment in
real estate are relatively lower than that in the stock market,"
said Mao Zhi, a professor at China Real Estate Index Research
Academy.
Some are even selling their stocks to pay for house loans before
the recent lending rate hike of 27 basis points. These funds have
indirectly flowed into the real estate market, analysts said.
"The interest rate hike is not expected to have a negative
impact on the property market. The gap between long-term deposit
and lending rates narrowed only 9 basis points after the rate
adjustment, showing that the measure is not targeting the real
estate market," said Li Maoyu, an analyst at Changjiang
Securities.
At the macro level, the fund flow trend from stocks to real
estate is reflected in the sharp increase in bank loans, economists
and market analysts said.
According to statistics from the People's Bank of China, the
increase of loans outstanding in June alone was 451.5 billion yuan,
while it's only 247.3 billion in May. Of the additional increase of
56.6 billion yuan loans from the same time a year ago, 79.9 percent
were household loans.
"Since the majority of household loans were mortgage loans, it's
clear that more funds have been relocated to the property market
lately," said Shen Minggao, an economist at Citigroup.
"Investments in luxury residential properties also shot up as
many investors cashed out of the Shanghai stock market and turned
to luxury properties as long-term investments," said Lina Wong,
managing director of Colliers, an international real estate service
provider.
In line with the increased transaction volume, selling price for
luxury properties grew 2.7 percent in the first half, compared with
3.5 percent in the past 12 months. The rents also grew 2.9 percent,
while it rose 3.8 percent from last June.
Worldunion said it's like the two markets are on a seesaw, when
"one goes up, the other comes down."
The National Bureau of Statistics has announced that China's
real estate investment rose 28.5 percent from a year earlier to
988.7 billion yuan in the first half of 2007.
"Anticipation of further renminbi appreciation should secure a
continuous inflow of foreign capital and help fuel the property
market," said Wong of Colliers.
(China Daily July 31, 2007)
