China view
Chinese real estate still looks a good bet but how sustainable is it long-term? Mark Godfrey reports.
China's unprecedented real-estate boom shows no sign in cooling, in either price or building-site activity. A blip early in the global recession cooled prices in the main cities, particularly in Shanghai. But then came last year's US$580bn flow of stimulus cash and easy lending by state-owned banks which all got cement mixers rolling again.
Its not surprising then that Chinese real
estate developers had US$84bn to invest in 2009, up nearly 45% year on year.
Looser lending and consumer confidence has also made selling space easier. Beijing city
statisticians say average real-estate prices here climbed 6.6% in 2009, to an average
€2,500 a square metre.
We're told home prices will continue increasing for 20 years - a late January prediction from the China Real Estate Chamber of Commerce. This may be good news for Irish firms like CRH and Treasury Holdings, with money in the local cement and commercial real-estate markets respectively. And it's certainly good news for local real-estate developers. It's good news, too, for government offices for whom land auctions are a source of revenue, more than tax collections (technically the government owns all the land and, though it assigns long-term leases, it can confiscate land in the public interest).
But 20 more years of a real-estate boom is not necessarily good news for China. Certainly not for its majority poor who have made demolitions the most sensitive political potato for Beijing's mono-party system. No, the real-estate boom hasn't always been good news for ordinary villagers and city dwellers who have taken to the streets around the country to protest against the forced purchase of the their land by real-estate developers (through government). The developers will continue to do so, as long as they need land.
Demolition gangs have already claimed most of what was unique and worth saving in any sizeable Chinese city. The latest, and saddest, news is that Beijing's only remaining old-town district of note, Gulou, is set to get the same ersatz treatment as Qianmen: original residents cleared, property developers called in to produce a dickied-up commercial replication which is precisely what the country's leading private developer, SOHO, did in the ancient Qianmen district.
Using the people's money (lately lent easily by state banks) to buy the people's land, sold by the people's government, property developers have vandalised ancient places like Qianmen beyond any architectural significance. But what they've built is of questionable, if not terrible, quality.
The new building where I'm writing this looks like it was built by a ten-year old. Poor design means there's no airflow. Poor maintenance means much of the paving outside and the floor tiles inside are cracked or broken. Try to let in some air and you'll find the window closes into a wall dividing two rooms. Built fast, sold fast. And all this in the city's talked-up central business district.
Perhaps most worrying of all, there's a splurge of real estate that no one wants such as malls and apartment complexes bought up by out-of-town speculators who buy because buying is better than putting your money elsewhere. Local banks pay rubbish interest rates, the local stock markets remain highly volatile and the government has strict limits on its citizens' moving cash for investments overseas.
So Beijing will have more anodyne, awful buildings in the name of "renovation and renewal", terms much used for areas marked for bulldozing. The plan for Gulou is typical: old timers get enough cash for resettlement to a high rise in the suburbs. Some are happy to go for the central heating while others decry the loss of community. But when they're gone, there'll be more of the usual mix of restaurants and sportswear shops, with some bits of ‘ye olde China shoppe' efforts too. But because China has too much unwanted real estate, the rents quickly fall along with the tone of the place. And then the cigarette shops and the noodle fast-food joints move in to take up space no one wants but which has been paid for by an investor who saw bricks and glass as a better bet than shares.
This is all the more frustrating because China actually does need real-estate space. Just not of the above kind. Given the massive urbanisation underway here - 500 million people are bound for cities in the coming decades - China needs real estate at a price more in line with the average wage - about €3,000 a year in Beijing in 2009. There's a very obvious lack of enthusiasm for social housing since real-estate developers have proven unwilling to limit prices and local governments unwilling to foot the cost.
There'll be no slow-down in China's real-estate prices this year. Not while the stimulus spend continues. And not while there's an interdependent relationship between builders and politicians - read the daily death sentences reported in official media. State-owned companies continue to pile into real-estate speculation. Officials, already geared in the Stalinist school of town-planning, are keen on bulldozers because they earn taxes from big office blocks, not from a genuine old building.
We're told that real-estate prices will keep climbing for another 20 years. Maybe. But it may, of course, all come crashing down when the spectre of non-performing loans comes home to roost with all its consequences. There probably won't be any crash soon. There's a familiar enthusiasm for things to continue as normal, given there's plenty of short-term profit from cut and pasting these sub-par apartment complexes all over Beijing.
It's speculation: real estate gets built and bought in cities like Beijing but no one's living in half it. There's pent-up demand. But what's being built is not what's needed.
