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TheStreet Open House

How to Grab a Piece of China's Real Estate Boom

TAIPEI (TheStreet) -- Chinese ex-president Hu Jintao knew his people felt safest investing in real estate, given stock market obstacles. But that fueled speculation that drove home prices out of reach of the country's restless aspiring middle class. He attacked that price growth a year ago with a list of hardline measures.

But Hu's famed five national rules on real estate written to curb speculative home buys did little to property prices following a steep rise in the second half of 2012. Then his successor Xi Jinping basically dropped the rules after he became president in March.

That shift should give historically hesitant overseas real estate investors a chance to drop their guard in China. On page 2 of this article I list stocks investors might consider to buy into the Chinese real estate boom.

Home prices rose 15% to 20% per month in China's biggest cities much of last year. From the second half, price growth has shown signs of moderation.

Oversupply of housing in multiple cities is leading developers to cut prices, since more are on the way, investment bank Credit Suisse says in a Feb. 25 research note. Supply surged to keep up with speculation.

China responded to the problem by stepping aside. That shows that the Xi government means what it says about leaving more up to the free market.

"Letting the market decide has slowed prices," says James Macdonald, head of research with the real estate services firm Savills China in Shanghai. "I presume the government would be less likely to introduce new policies given that the growth has decreased over the past six months. Prices have slowed, which is what any government wants."

A Feb. 20 commentary glibly titled "Property Rules Not Working" appeared in the state-monitored newspaper Global Times. It further suggests that Hu's year-old edicts to counter brisk sales through speculation are off the books.

Continued price moderation would motivate Beijing to let the market flourish by letting supply and demand call the shots. Though easing prices might repel a few developers, the freedom from government controls should attract them. And prices are still growing, just not as fast as a year ago.

Follow first the offshore real estate developers that already have a China strategy. They build ultra-high-end housing, malls and office complexes in obvious top cities such as Beijing and Shanghai. Then they lease as well as sell. Leases depend less on real estate prices of the moment.

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