In 2010, China achieved a major milestone when it overtook Japan as the world’s second largest economy, the culmination of many years of double-digit growth and a quick rebound from the global financial crisis. At the end of 2011, the country achieved another milestone when new data showed that for the first time more than half of China’s 1.35 billion people lived in urban areas. This ongoing urbanization is a powerful trend that experts expect to continue: Some estimate 15 million new residents will move to China’s cities each year for the next 10 to 20 years. The urbanization, along with rising incomes, has helped keep the mighty economic engine in high gear. But China has not been immune to world events. The European sovereign debt crisis and ensuing European recession, and a barely growing U.S. economy, are slowing China’s exports, and government-imposed sanctions in China have thrown a wet blanket over the residential sector. What might be in store for property investors in the country in the near term?
From the Current Issue
This is official: the previous target of maintaining an 8 percent annual GDP growth rate in China has been lowered to 7.5 percent. After promoting and defending “bao ba 保八” (“protect the 8 percent GDP growth target”) for about eight years, Premier Wen Jiabao of China unveiled the new target at the start of the annual National People’s Congress in early March.
Many investors believe China’s real estate sector is abundant with opportunities supported by strong and attractive market fundamentals. To a large extent, this thinking is true. After all, China’s GDP is still growing at almost double-digit rates (forecasted to be 9.2 percent for 2011) while most of the developed nations are battling their way through different challenges. When it comes to the real estate investment opportunities in China, the residential sector in second-and third-tier cities will, almost by default, make its way into the minds of CIOs globally. Traditionally speaking, sourcing residential deals in second- and third-tier cities has always been much easier than searching for quality opportunities in first-tier cities such as Beijing and Shanghai.
China’s consumption power has enjoyed massive growth, with retail sales having recorded double-digit growth since 2001. In 2011, retail sales reached 18.12 trillion yuan (US$2.9 trillion), a year-on–year increase of 17.1 percent, while the rest of world is still struggling. This growth is set to continue as the government focuses on steering economic growth away from its current dependence on investments and exports toward a more consumption-driven economy.
For more than two years China’s housing policy has been dominated by a series of government measures designed to cool a super-charged market and battle rising home prices. Strange things have been happening. Transactions have stalled, and housing prices are falling in cities across the country. For many homeowners this is an unfamiliar trend. Now some local government officials, economists and property industry players are predicting that China’s housing policy is about to change. Property controls will be relaxed. Yet at the same time, the word from central government officials and others is restrictions will continue firmly in place. In a recent speech, Premier Wen Jiabao affirmed that China will not waiver on its real estate controls and remains resolute in its efforts to bring home prices down to a reasonable level to ensure fairness and stability.