I attended the UCLA Woo China business conference in Los Angeles last week and wish to share with you some of what I heard and some of the impressions I came away with..
Real estate is booming in China. The Chinese economy is booming, going up consistently 10% each year in gross domestic product. Productivity is increasing with each 10% increase in the workforce producing up to 90% increase in business productivity.
The real estate boom is on. Twenty million people a year are moving from the country into the cities and there is a severe housing shortage. The interest in China with the Beijing Olympics and the future Shanghai Olympics is producing more of a boom. There’s so much housing pressure that the communist government just issued a rule that one person cannot buy more than one house. This is the good side. Investing makes millionaires each year in the real estate license Ontario market each year.
The bad side is this is still a communist country. You actually don’t buy the land, you just buy the house. The land is leased from the government, generally the local municipal government on a renewable lease for up to 70 years. The lease payment each year takes the place of our property taxes.
You need a Chinese partner in order to do business in China. It is not all like a Chinese buyer coming into the US and buying a home on their own. If there’s a legal dispute you are very dependent on the municipal authorities to interpret the federal law. Apparently a lot of business transactions at the present time are done on the basis of good will preceded by doing diligent research on your partner. One way around this is to make the government your partner – for example one of the panelists is building senior housing for the growing older population.
Secondly, mortgage market are not yet well developed to support real estate ventures.
Thirdly, there is horrible air pollution in China. The real growth industry here may be environmental cleanup including water and sewerage projects.
Fourthly, after a country hosts the Olympics there is generally a drop in the real estate market which has boomed for the year or two preceding the Olympics.
To compensate for the risk, the panelists stated they look at ventures in China with a 35 to 40%/year return rather than the conventional 20% return for good real estate investments in the US.
The China investors on the real estate panel said there are not at present any reliable REITS. They discouraged investing in China’s stock markets in Hong Kong or Shanghai at the present time since there is probably a stock market bubble and a lot of the investor protection controls are not there. Actually the real center for business and banking in Asia is Singapore. India is another place for more stable Asian investment.
Well, I won’t be investing in real estate in China anytime soon. Once again I would look in the South East United States and at the present time parts of Baja California. At home, the market in the Palos Verdes Peninsula seems to be active once again
Update March 19, 2007 There is talk that the Chinese general assembly last week may have passed a law stregthening private property rights. There has not yet been any news announcement from China about this.
– Ross Chadvick