China home prices unlikely to crash: CBRE

Residential prices could plateau in H22010 but major correction unlikely

RENOWNED short-seller Jim Chanos sees a property bubble on the verge of bursting in China. But other well-known investors disagree – and on their side of the fence is CB Richard Ellis president and CEO for Asia Chris Brooke.

Residential prices in China could plateau in the second half of this year but a major correction is unlikely, he said in an interview with BT.

He also believes that large parts of the Singapore and Hong Kong property markets are not in risky territory.

For China, 2010 could be ‘a year of consolidation and stabilisation and getting back to a more sustainable market’, he said. ‘Residential prices could probably increase a little bit in the first half and stabilise in the second half.’

Price growth in China has slowed in the past few months, Mr Brooke said. There is a seasonal effect – buying tends to ebb during the festive period.

Government measures to cool the property market have had an impact, he said. For instance, the China Banking Regulatory Commission told banks last month to raise downpayments and interest rates for third mortgages.

Such initiatives have dampened sentiment. ‘Buyers take a step back and say ‘maybe I’ll wait and see what happens before I make that decision’,’ Mr Brooke said.

The government could implement more measures to calm the market, he said. ‘Policy risk is always there in China. The government has probably more involvement in the market there than anywhere else.

‘But because the real estate sector as a whole is an important part of broader economic growth, I think the government will look to strike a delicate balance.’

Naysayers are worried not just about fervour in China’s residential sector but a potential supply glut in its commercial sector. Reports of buildings left vacant while massive new ones take shape have fuelled more talk of a bubble.

But Mr Brooke is sanguine. It may take several years for supply to be absorbed, but there will be demand from multinational corporations and domestic companies, he said.

For instance, there has been strong demand recently for offices in Beijing, where rent for Grade A space may have bottomed.

As for Hong Kong and Singapore, he sees limited speculation but little policy risk. Recent anti-speculative measures introduced in both markets have signalled that the authorities are keeping a close eye, he said.

In Hong Kong, home prices shot up in the luxury segment but rose at a more measured pace in the mass to mid-market. As such, prices have more room to grow this year in the mid-market than in the luxury segment, Mr Brooke reckons.

Source: Business Times, 4 Mar 2010