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China’s Real Estate Market ‘Very Healthy’, Chan Tells Breakfast Parley
China’s real estate market, often depicted as headed for a sharp downturn, is in fact “very healthy,” a leading Hong Kong entrepreneur told a breakfast session presented by CKGSB Americas.
Hong Kong entrepreneur Ronnie Chan talks to a packed room at CKGSB’s New York office
Ronnie Chan, Chairman of Hang Lung Properties Ltd. and the Executive Committee Chairman with the Better Hong Kong Foundation Delegation, said that critics predicting a crash in the residential real estate market have misled the public by basing their forecasts on data from top and lower-tier cities that fail to portray the world of real estate accurately. In China’s “all-important” Tier 2 cities, the market is “very healthy,” Mr. Chan said.
“A lot of people say that in the market for Chinese real estate, the bottom is going to fall off,” Mr. Chan told an audience at CKGSB Americas’ New York learning center that included more than 80 executives and senior managers from global corporations and organizations. “I’ve not seen residential real estate demand in China as healthy as it is today.”
The average home price in China tripled between 2003 and mid-2008, but cooled in the second half of 2008 due to economic uncertainties spurred by the global financial crisis. In November 2008, China announced a 4 trillion yuan stimulus package ($610 billion in today’s currency) that sparked another housing boom. The government eventually initiated a series of measures to cool the property market.
Home prices in top Chinese cities recently have jumped. Shenzhen led all cities with a 52.7 percent surge, followed by Shanghai with a 21.4 percent increase and Beijing with an 11.3 percent rise, Xinhua reported.
Mr. Chan accused the media of focusing too much on price increases in top Tier 1 cities such as Beijing and Shanghai, saying those increases tend not to reflect trends across the country. Reports on “ghost cities” in Tier 3 and 4 localities are also misleading, he said.
“In the Tier 3 and 4 cities, a lot of those cities are overbuilt,” Mr. Chan said. “Hey, who cares? The unit price is low, right?” And US critics, he added, extrapolate from the overbuilding mainly in the Tier 4 cities to say China is in a seriously overbuilt situation and that the market is going to crash.
“You know there are no mortgages on all those ghostly, empty properties?” Mr. Chan asked. “How is a bubble going to burst?”
China is building new cities as part of its plan to move about 100 million people from rural areas to these locations in a bid to boost economic growth.
Capital flowing out of China's equity market is fueling property investment, Mr. Chan said. With Chinese stocks locked in a bear market and bond yields hovering near all-time lows, investors' savings have limited destinations outside of real estate.
“Guys put their money into real estate and pay all cash for it, so there is no bank coming after you,” Mr. Chan said.
It is more significant that “all-important” Tier 2 cities are healthy, he said. “Those are markets where the unit prices are quite high, where people are educated and wealthy. That market is the most important. And that market is very healthy.”
Mr. Chan, who received his MBA from the University of Southern California, has
been the chairman of Hang Lung Group and its unit, Hang Lung Properties, one of the largest real estate developers in Hong Kong, since 1991.
Since 2005, Hang Lung has invested $11 billion and built world-class commercial complexes in cities such as Tianjin, Shenyang, Jinan, Wuxi, Dalian, Kunming and Wuhan.
Mr. Chan also is vice-president of the Real Estate Developers Association of Hong Kong, a Co-Chairman of the Asia Society and an advisor to the China Development Research Foundation of the State Council of the People's Republic of China.
The event was co-sponsored by Hong Kong Association of New York, Kohn Pedersen Fox Associates and the Better Hong Kong Foundation.
CKGSB’s next Knowledge Series event is a June 24 symposium at the Ritz-Carlton hotel in Washington, D.C., marking the 10th anniversary of CKGSB’s partnership with University of Virginia’s Darden School of Business. Speakers at the event, “Executive Insights on US—China Business: The Impact of Foreign Policies and Presidential Politics,” will include Ambassador J. Stapleton Roy, Darden Senior Associate Dean Michael Lenox and CKGSB Associate Dean Teng Bingsheng. Attendance fee is $95, including breakfast and lunch; a complimentary seat is available for CKGSB Knowledge Series members.