[photopress:property_Xu_Rongmao.jpg,full,alignright]As China’s government attempts to cool property prices with limits on lending, developers are in a land grab. The National Bureau of Statistics said Li Ka-shing, who made his fortune in Hong Kong real estate, Chinese billionaire Xu Rongmao (seen in our illustration), who owns Shimao Property, and hundreds of local developers boosted investment 29% in the first eight months of 2007.
Eugene Kim, chief investment officer of Hong Kong-based Tribridge Investment Partners, a $200 million hedge fund, came up with a cheery view: ‘If the government decides to impose further restrictions, most if not all of the developers will go bankrupt, depending on the severity of the restrictions. That makes us very selective in terms of which bonds we buy and the spreads we require to compensate for risk.’
According to a National Development and Reform Commission survey home prices in Shenzhen were 18.6% higher in November than a year earlier. In Beijing the rise was 14.9% and in Beihai, in Guangxi province, 16.4%.
The People’s Bank of China last month raised its benchmark one-year lending rate to a nine-year high and increased reserve requirements to the highest it has been since 1998. In September the government increased the minimum down payments on apartments from 30% to 40%.
Signs of a reaction have started to appear. The nation’s largest publicly traded developer, Shenzhen-based China Vanke, sold property worth RMB4.23 billion ($582 million) in November, 18% less than in October.
Clara Lau, an analyst at Moody’s Investors Service in Hong Kong, said Chinese developers are among the most vulnerable of any group in Asia to downgrades because a slowdown in home sales would deplete cash.
She explained the rush to buy land: ‘They have been growing aggressively, with the view that if they don’t buy now, it will be more expensive for them later.’