An article by Min Xu in Asia Times Online gives an impartial view of the potential of the real estate market. She writes that over the past four years the stock market and real estate market in China have gone in completely opposite directions.
The real estate market has flourished. The property market in Shanghai, one of the hottest in China, grew 60 percent in 2004 over the 2003 level, while housing prices have increased 200 percent over the last two years. Local governments, which generate substantial profits from property taxes and land sales, have a fiscal incentive to encourage the growth of the real estate sector. Between 2001 and 2003, they are estimated to have received 910 billion yuan from land sales alone, compared to only 6.7 billion yuan in 1998, according to a government official. Furthermore, over recent years, foreign capital has also poured into the housing market.
A survey released by the NBS in July shows that almost 70 percent of those surveyed believe that housing prices would keep rising in the future, compared to only 11 percent who believe that housing prices would fall. However, the supply in the property market is unlikely to increase significantly, due to land supply limitations and macroeconomic controls. As China’s economy further prospers, the middle class is poised to grow both in population and affluence. These investors will continue their pursuit of improved investment options in line with their risk and return requirements.
Min Xu is a Shanghai native and a recent graduate of the MBA program at New York University’s Leonard N Stern School of Business. She has worked in corporate finance.
Source: Asia Times Online
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