CHINA ’ S ECONOMY
CHINA ’ S ECONOMY
As the years roll on and successive proclamations of economic Armageddon go unrequited , China ’ s housing market remains not only afloat but some could say , as strong as ever
It used to be said that when the United States sneezed , the rest of the world caught a cold . Well , times change . If you want to catch an economic cold these days the infection is likely to come from the East and not the West . For all the much-vaunted partnership that BRICS brings , the focus of capital markets is not on Brazil , Russia India or ourselves , but on China , the only economy in the world to have posted GDP growth of more than 5 % per annum for each of the last ten years .
So how real is this resultant wealth ? How is it distributed and where is this growth coming from – organic or merely driven by inflated asset values ? A lot of capital has gone into overseas ( for China ) real estate assets , much of it in Australia , because of , amongst other things , the benefits of dealing with assets in the same time-zone as you . Over the past year , Chinese domestic investment markets have become progressively less stable with the policy of making the yuan more liquid and the carnage in China ’ s stock markets in January being two indicators of what may become a long-term trend .
Overseas investment in property in South Africa has never been a major capital inflow ; 6 % at best even when the market was stronger than it is now . But foreign direct property investment has always been focussed on “ trophy ” assets , often in the R10m-plus range , so variation in investment intentions has a disproportionate impact on sentiment at the higher end of the market .
The Property Market As the years roll on and successive proclamations of economic Armageddon go unrequited , China ’ s housing market remains not only afloat but some could say , as strong as ever . The market heats up to a boil then cools off a little without ever crashing . So does this mean that China has had a housing bubble that has endured for over a decade ?
One of the main reasons that China ’ s real estate market has ultimately maintained stability in the face of regular bouts of seemingly overinflated prices is that the central and local levels of governments are firmly at the helm . They have control over the supply of new land for construction , financing for development , mortgage policies , tax rates , as well as housing purchasing restrictions that they use like a thermostat to heat up or cool off the market at their discretion .
There is a very good reason for this heavy hand . In China , real estate is responsible for 15 % of GDP , 15 % of fixed asset investment , 15 % of urban employment , and 20 % of all bank loans , according to the IMF .
When Chinese stock markets dived in July and August last year , developers and property agents said the volatility would drive more capital out of China and into property overseas . However , the 7 % plunge on January 4 and a similar aftershock on January 7 saw Beijing clamp down harder on the flight of capital , limiting Chinese ability to buy properties overseas . Analysts ’ viewpoints confirm that these regulatory uncertainties mean that the reduction in volume of capital available in
www . reimag . co . za MAY 2016 SA Real Estate Investor 13