Chinese Land Sales Moving West?

Land sales in China have plummeted as the governments curbing measures not only put the brakes on the market but sent it hurtling into reverse.

Land sales in China have plummeted as the government's curbing measures not only put the brakes on the market but sent it hurtling into reverse.

The government attacked the charging bull-market from all sides. They banned second home buying by individuals and increased the minimum deposit level on mortgages, which combined to bring down sales levels. At the same time they made it harder for Chinese developers to get finance from the banks as well, leaving many developers looking overleveraged and many more looking severely so. The final nail in the coffin was a new property tax starting off in several cities including Shanghai.

Price falls then began to be recorded, first in the major cities, when developers began cutting prices on their new build developments. Many developers cut prices by up to and some even more than 20%, which sparked protests from buyers who had paid the higher prices. So with this market now squeezing developers have they really all stopped buying land banks, or simply chosen/been forced abroad to seek out their next set of opportunities?

This is not an easy question to answer. Here is what we know for sure:

  • The number of Chinese buyers as a percentage of all buyers has been increasing in locations throughout Europe for the last 2 - 3 years
  • Chinese buyers abroad are predominantly wealthy, they pay cash, and buy mainly as an investment
  • They prefer main cities, like London and Paris
  • They tend to buy in cash rather than loans

Unfortunately, the majority of these facts come from what we know about Chinese investors buying property of all classes, not land sales per se. However, what we can see here is that even when the Chinese economy and property market was doing well, Chinese investors were looking for opportunities abroad. So, it stands to reason that with the Chinese property market not falling, this trend would increase.

On top of that, the fall in the Chinese market was on the cards for a long time, so it is more-than-possible that investors and developers would have begun looking abroad for opportunities in advance of the government finally succeeding and cooling the market.

So, with the Chinese market now cooled, rental booms in the US, the UK and an abundance of cheap property in places like Spain, it is highly likely that the buyers now lost to the Chinese land markets are occupying space at property auctions and scouring markets around the world for investment opportunities.

 

- Thursday 24 November 2011

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