China Property Bubble Headed for Soft Landing, Says Standard Chartered Executive

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UPDATE: China Property Bubble Headed for Soft Landing, Says Standard Chartered Executive

Posted by Alex Finkelstein 07/12/10 8:30 AM EST
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Shanghai, China

When Standard Chartered Bank speaks, developers and investors in Asia, Africa and the Middle East listen closely.

China's property prices are likely to stabilize over coming months as the government's latest market tightening measures help the sector engineer a soft landing, a top Standard Chartered real estate executive told Reuters.

Standard Chartered plc (LSE: STAN, SEHK: 2888, OTCBB: SCBFF) is a British financial services company headquartered in London with operations in 70 countries. It operates a network of 1,700 branches and outlets (including subsidiaries, associates and joint ventures) and employs 73,000 people.

The bank is listed on the London Stock Exchange, Hong Kong Stock Exchange and the Indian Stock Exchanges and is a constituent of the FTSE 100 Index.

Edmund Ho

"We don't see a bubble. What we've seen is a correction in the market," Edmund Ho, StanChart's managing director and head of greater China, commercial real estate, told attendees at a recent Reuters Global Real Estate and Infrastructure Summit.

"Standard Chartered believes that it's going to be a soft landing. It's not going to continue going down, it's going to be stabilized. This is how we see the next six months," Ho said.

Chinese leaders, including Premier Wen Jiabao, are concerned over China's growing asset bubbles. The premier has said reining in runaway property prices was a key economic task for the government. A series of tightening measures have since been introduced this year, as Real Estate Channel previously reported.

China announced the latest property tightening measures in mid-April. They are seen as the toughest in the past six months. The new regs require buyers who own more than one apartment to fork out higher down payments and mortgage rates.

In first-tier cities, such as Beijing and Shanghai, sales volumes have plummeted by 60 to 70 percent, while second-tier cities saw transactions halved, Ho said.

Wen Jiabao, China Premier

Prices have also eased off. Government data showed that China's urban property prices were up 0.2 percent from a month earlier, logging the smallest increase since the early 2009.

Even though transactions have plunged, Ho said China's key developers would still have enough cash for most of this year due to strong sales last year and provided they remained prudent in their land purchases.

But some Chinese developers are still in the market for fund raising.

"From the developers' standpoint, quite a few of them are still wanting to tap the high-yield (bond) market before they start issuing equity -- equity being the most expensive," Ho said.

Ho said investor appetite for high yield bonds had been healthy as the debt market stabilized after months of volatility due to Europe's financial woes.

"We are hearing investors looking for investments into China real estate sector through instruments of this type," he said.

In the commercial sector, rental yields in the office and retail space in China's first-tier cities are expected to be stable this year, Ho said.

"The office and commercial market has been pretty stable, so that will continue," he said.

Rental yields in Beijing and Shanghai's offices are currently at around 7 percent, he said, which are higher than those in other major Asian cities, such as Hong Kong and Singapore.

Shanghai's retail sector is seeing rental yields of about 6 percent, he said, as shopping centers see strong demand from increasingly wealthy consumers.

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