Realty check

Value power

Though there are fewer foreign investors now, the total amount of money flowing into the Chinese property market has increased during the first six months of this year.

More than 33 local governments were given the green light for their proposed realty fine-tuning measures in the second quarter, including lower down payment requirements, favorable mortgage rates and lower transaction taxes in second and third-tier cities to boost home sales, say sources from Vigers.

The total investment in property development from January to July was about 3.68 trillion yuan, up 15.4 percent over the same period in 2011. The strong growth rates offer enough cushion for future aftershocks, says a report from Shanghai Insight Investment Co Ltd, which also operates the first yuan-based real estate private equity fund in China.

The adequate supply of capital also adds more credence to these statements. The series of steps announced by the government to counter the CPI fall and stem the growth decline are all steps that ensure sufficient liquidity in the market.

The bigger social financing spend of 8.82 trillion yuan between January and July, which is 5.14 billion yuan more than the same period of previous year, has also helped ease capital concerns further, says a recent report from Shanghai Insight Investment.

The real estate financing system by itself has become much more diversified in the last three years. According to Zero2IPO Research Center, a leading institute on VC and PE investment in China, 67 new real estate private equity funds were registered in China during 2011, and collectively raised funds of more than $5.86 billion, nearly double the amount raised in 2010.

"After nearly three years of property market regulation, the government policies have become clearer and seek to prevent a real estate bubble and ensure stable development. We believe that the Chinese property industry will move toward a healthier and more rational development path," says Dong Weihai, managing director of Insight Investment Co Ltd, a Chinese real estate financial solutions provider.

"The bubble threat for the Chinese property sector has been the subject of discussion among Western analysts for some time now. When the whole world is facing a difficult economic situation, the idea of a Chinese property bubble becomes even more credible. What these analysts, however, do not understand is that the property in China is also going through a cyclical phase and would naturally have its peaks and troughs," Dong says.

"The Chinese market gives a high return on investment of about 20 percent, compared with mature markets such as the US and Europe."

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