Investment Property in China

Why should investment property in China be of any interest to you? There are four basic reasons:

  • Investment in China could be profitable
  • Anyone already invested in China may wish to consider selling
  • A slowing Chinese economy hurts third world raw material manufacturers
  • And, if the Chinese real estate bubble does not quit deflating it could drag China and much of the world back into recession

The Positive Side

China’s economy has been growing for nearly half a century and many have reaped huge profits from investing in real estate companies in China. Despite eight months of decreasing property values the government is instituting strong stimulus measures that just could save the day and drive prices back up. If that is the case then it would be a good time to invest at the bottom of the price curve. Two articles, one in the New York Times, offer contrasting views on the subject. There may be signs of hope.

The tentative rebound in some cities’ housing prices suggests that recent steps by policy makers are helping engineer at least a slight turnaround in the market. Last week, the central bank cut interest rates for the third time since November; it had already removed several restrictions on some home purchases.

“April’s home sales growth returned to positive territory, the first time since December 2013, following a slew of easing measures introduced to support the weak housing market,” analysts in Hong Kong at Bank of America Merrill Lynch wrote on Monday in a research note. “We expect home sales to remain robust in the coming months as the recent monetary and property easing measures continue to provide support.”

This point of view has it that investment in property in China might be a good idea as the market may have bottomed out, at least in the major cities.

The Alternative View

Reuters offers a contrasting view of investment property and home prices specifically in China.

China’s new home prices fell for the eighth consecutive month in April from a year earlier but were flat from March, adding to hopes that a property downturn which is weighing heavily on the economy is beginning to bottom out.

But analysts warned any recovery in the market will take some time given a huge inventory of unsold homes, and said the property sector remains the biggest risk to the world’s second-largest economy, which looks set for its worst year in 25 years.

That will keep pressure on policymakers to roll out more interest rate cuts and other stimulus measures later this year to boost activity.

Average new home prices in China’s 70 major cities dropped 6.1 percent last month from a year ago, the same rate of decline as in March, according to Reuters calculations based on official data published on Monday.

China is seeing its exports slow down and the government is pushing stimulus programs such as low interest rates as well as infrastructure projects. As the real estate market dwindles it further slows economic growth which many believe will resemble that in Europe or North America in a decade or so. The bottom line for investors interested in investment property in China is that the glory days are probably over. The bottom line for investors in general is that a continually slowing Chinese economy will drag down many third world countries that rely on raw material exports to China for growth. If the slowdown in generalized it will affect Europe and North America as well.

The Problem Is Broader than Just Real Estate

Business Insider looks at three indicators that point to a slowing economy,

  • Electricity usage for the February/March period was up only 0.9% versus the same period last year. This is well off the mid-single-digit growth it had held for some years.

  • Second, tax collections for the February/March period were unchanged versus the same period last year breaking its longstanding trend of solid mid-single-digit growth.

  • The Shanghai Shipping Exchange freight index has fallen nearly 17% since mid-February and is now at levels not seen since 2011.

A recurring complaint of investors is that China tends to inflate number or hide info. The indicators above are probably accurate and an indication that things are not going well in the Middle Kingdom. Whether you are interested in investment property in China or any sort of investment, pay attention to where things are going.

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