China’s property market bounces back

Source : Sunday Times – 12 Jul 2009

An investment unit of Australia’s biggest investment bank Macquarie Group last week sold a Shanghai luxury residential property that was put on the block more than a year ago, taking advantage of a rebound in China’s real estate market.

The 26-storey City Apartments in downtown Shanghai was sold to a small group of Chinese investors for about 300 million yuan (S$64 million), according to two people with direct knowledge of the deal. Macquarie bought the property four years ago for about 400 million yuan.

China’s housing sales have surged 53 per cent in the first five months of this year as an explosion in new loans stoked demand and investment, according to a survey commissioned by the statistics bureau and just published in the China Information News.

Prices are also turning up.

Urban property prices in 70 of China’s large- and medium-sized cities rose 0.2 per cent in June from a year earlier, the first increase in six months, according to the survey.

Rebounding prices could bode well for investment in the sector, but many analysts have raised concerns that the market is being supported by easy credit from China’s banks, and could develop into an asset bubble, the Wall Street Journal reported on Friday.

Property transactions have been increasing since February, fuelled by low interest rates and government measures to support the sector, including tax breaks on transactions and lower downpayment requirements.

The market rebound has enabled Macquarie and other foreign institutions to dispose of their China properties more quickly.

Morgan Stanley recently sold all the units at its high-end residential project Chateau Pinnacle in downtown Shanghai, local media reported.

‘Many foreign institutions are strained by the global credit squeeze and want to exit some of their China projects due to investment cycle,” said Mr Alex Wang, partner at US law firm Paul, Hastings, Janofsky & Walker.

‘Meanwhile, local investors, with easier access to borrowing and worried about potential inflation, have emerged as buyers for these properties.’

Of the 70 cities in the survey, all but five posted month-on-month gains in property prices in June, indicating a broad-based recovery.

But prices in China’s top-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou, which soared before the downturn, fell last month from a year earlier. On a month-on-month basis, prices rose in all four cities.

Mr Julien Zhang, managing director of property consultancy Jones Lang LaSalle in Beijing, said on Thursday that China’s top-tier cities have larger gluts of unused commercial property due to over-investment in the boom years, while the situation in second-tier cities is better.

Prices of newly built residential properties fell 0.6 per cent last month from a year earlier, rebounding from the 1.3 per cent fall in May. Prices in the secondary market rose 2.2 per cent last month from a year earlier, after May’s 0.9 per cent rise.

Macquarie, which has been active in China’s residential property market for a decade, bought City Apartments in 2005, and put the 16,000 sq m residential development up for sale early last year as the bank shifted its focus towards commercial properties.

Macquarie had previously negotiated with four other potential buyers, including the real estate arm of Citic Capital, the investment banking unit of China’s biggest financial conglomerate Citic Group.

But the talks collapsed as the global financial crisis dampened demand and hit China’s property market last year.