This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

China's Real Estate Riddle

NEW YORK ( TheStreet) -- There is broad disagreement on the direction China's real estate market will take this year. While some analysts presage a crash with prices plunging nearly 30%, others are more optimistic and foresee prices improving by a healthy 10% to 15%.

During April, the Chinese government introduced tougher policies to rein in the property market. The government hiked minimum mortgage and down payment rates, restricted second home purchases, and blocked bank loans for third houses. China is contemplating on introducing a property tax, which seems less likely now as prices dropped by a marginal 0.1% in June, as compared with May.

Some economists are optimistic and foresee these measures as property-control policies and expect prices to drop in the near term. However, others see an even greater crisis brewing and believe that such measures will only induce a short-term correction, followed by an inevitable strong rebound during the fourth quarter of 2010.

Many analysts believe that the appreciating yuan will attract foreign investors to China's real estate, especially after prices drop. Industry experts expect the yuan to rise 3% this year. The first six months of the year saw investments increase almost five-fold compared with the same period last year.

Analysts at Credit Suisse studied the impact of "grey income," or income that goes unreported on the real estate sector. They cite a study by Wang Xiaolu, a Chinese economist, who reported that most Chinese households are wealthier than earlier because a part of their income goes unreported. Wang Xialou's research shows that a home in China costs only about 3.5 times the average household income, a figure that is lower than that of many developed countries. Credit Suisse postulates that property sales will bottom out moderately, before staging a strong rebound.

However, Kenneth Rogoff, a Harvard University professor, believes that a crash is imminent. This view concurs with a study done by Yi Xianrong, an economist at the Chinese Academy of Social Sciences, which measured the deviation from the demand-supply balance in the country's real estate sector. Currently, there are 64.5 million unoccupied apartments and homes in urban China , mostly owned by speculators hoping to make a profit from the rising prices.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CHLN $2.96 -100.00%
BHP $27.63 0.00%
EJ $6.64 0.00%
XIN $4.88 0.00%
AAPL $94.19 0.00%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs