June 21, 2016

China’s Two-Speed Real Estate Market Sees Second Bull Run Since GFC

Peter sits down on CNBC’s The Rundown to discuss China’s rising real estate market. While Tier 1 cities like Beijing, Shanghai and Shenzhen have seen double digit growth, Tier 2 cities are also beginning to see their local markets grow.

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Pauline Chiou: On the one hand we have seen some of the limits, the restrictions that have been put in place, whether it’s the bidding restrictions or limits on land prices; we’ve seen the effect of those at least in the first tier cities, based on the latest numbers that came out.

Peter: Well that is correct, you’ve got to think that the China real estate market is in its second bull market since the Global Financial Crisis in 2008. We’re now about 15 or 18 months into the second upswing since the GFC and that upswing has really been generated by policy measures which have removed some of the restraints that were put in place after the last bull market. But this bull market has been what I would call a two-speed market. We’ve really seen the big increases come in what I would call the Tier One cities, Shenzhen, Shanghai, Beijing, but those increases are now spreading to the smaller cities, even some of the Tier Three and Tier Four cities, and as you say, we’re now getting to a point where the vast majority of cities in China are seeing month-on-month increases in property prices, whereas a few months ago that would have been month-on-month decreases.

Pauline Chiou: And Peter while we saw a cool-down in Tier 1 cities, as you said, we did see a pick up in Tier Two, Tier Three cities, and you say that’s sort of speaks to the fact that China’s property market is really less homogenous than it used to be. Help us understand more of what you mean by that.

Peter: It used to be the case where just about every city went up and down together, but that’s not been the case in this particular cycle and I think that’s because a lot of the developers after the last cycle increased their land acquisitions and building activity in the smaller cities, the Tier Three and Tier Four cities, and what actually happened there was we ended up with a significant oversupply and a big buildup of inventory in those Tier Three and Tier Four cities. Even today, the inventory levels in those cities is running at 16 or 17 months, or even a bit higher in some cases, of average sales, whereas the inventory levels in Tier One cities are much, much lower at about 12 or 13 months. So I think what you’ve seen was that big build up of supply in those Tier Three and Tier Four cities which has lead the two-speed market.

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