2009 STRATFOR 700 Lavaca Street, Suite 900 Austin, TX 78701 Tel: 1-512-744-4300www.stratfor.com
The China Files (SpecialProject): Real Estate
The real estate market in China,particularly the residential side, is aburgeoning bubble that is growing biggerand more breakable by the day. Land andhousing prices were already rising steadilywhen Beijing’s stimulus package hit thesector in early 2009. Now prices aresurging, with developers, bureaucrats andinvestors cashing in while urban Chinese— once encouraged to invest in home ownership by the central government — become less and lessable to buy.
This analysis is part of a series that explores China’s industry, finance, statistics andreal estate.
On Sept. 10, China Overseas Land and Investment, a Hong Kong-listed company and a subsidiary of state-owned China State Construction Engineering Corp., purchased a prime piece of real estate in thePutuo district in downtown Shanghai. The company paid 7.006 billion yuan ($1.026 billion) for theundeveloped property, which will amount to an average of 22,409.3 yuan ($3,283.9) per square meterof floor space (just in land costs) once the designed residential building is constructed.The purchase created China’s newest “land king,” a term for the real estate developer who pays thehighest price for a piece of real estate during a land auction. And 7.006 billion yuan was the highestprice ever paid for a piece of Chinese realestate for any purpose — residential orcommercial. The milestone is a result of an increasingly intense competition forland in major cities that began early inthe year, when Beijing began distributingstimulus money to various industries —including the real estate sector — tosustain the economy. As a result, landprices have soared throughout China.And with increasing speculativeinvestment in residential real estate, themarket faces a surging bubble that jeopardizes the country’s long-termeconomic development.Since 1998, real estate investment inChina has accounted for more than 10percent of the country’s gross domesticproduct (GDP), compared to only 3percent to 5 percent in the United States.Such investment is also closelyassociated with many other industries,such as construction and finance, and itprovides an abundance of jobs.Therefore, it is seen as a critical pillar of China’s economy and enjoys favorablepolicies from the government and state-