Residents of big Chinese cities are worried about bubbles. It’s easy to see why: Shanghai mortgages rose 1,600% in 2009 from 2008 to US$15.58 billion, while residential property prices in the city shot up 68% from 2008 to US$4,571 per square meter. The rapid growth has prompted moves to curb speculation, including – in Shanghai at least – tightening of tax and financing policies on second-home purchases.
Such high rates of growth are of course unsustainable, but it remains too early to talk of bubbles nationwide. Yes, Wang Shi, chairman of developer Vanke, warned that property markets in Beijing, Shanghai and Guangzhou were frothy, but there is more to China than first-tier cities. In the words of Jason Leow, chief executive of CapitaLand’s China real-estate operations, "Urbanization is still happening … the high growth is still happening in China."
CapitaLand is obviously confident there is still room to grow: The firm just purchased the property business of container shipper Orient Overseas International for US$2.2 billion. Aiming to increase China assets to 35-45% of its total portfolio, the Singaporean developer is enthusiastic about its acquisitions in downtown areas – even in major cities like Shanghai and Tianjin – where room for development is limited.
Despite indications from Beijing that it is beginning to consider a more aggressive approach toward tightening policy, the government is aware that broad measures to control property price growth nationwide could hurt more than help. The property sector is a major pillar of the Chinese economy, driving demand for everything from cement to home furnishings and automobiles. A sharp correction in the real estate market would have far-reaching effects.
People are right to be aware of the risk of bubbles, but on the whole, growth in China’s property sector is supported by real demand.