Property

Asset swap

Investors switching from stocks to real estate

A family stands on an artificial grassland near a construction site of a residential complex, in Hefei

Thinking about buying again

Chinese stocks have been comfortably the world’s best performers this year, with the Shenzhen index doubling, and the Shanghai Composite also reaching a seven-year peak. Alibaba Pictures, for one, has seen its market value climb more than seven-fold to reach almost $10 billion in one year, and that’s even before the studio has shot a single picture. Savvy investors are now cashing in on the strong rally. Actress Zhao Wei, who last December invested (with her property tycoon husband) about Rmb2.6 billion ($420 million) in Alibaba Pictures, sold part of her stake in April, cashing in about Rmb800 million.

But what to do with the cash? Hong Kong’s Next Magazine says the A-list starlet has used the money to buy three luxury apartments in the territory for a total of Rmb120 million ($19.33 million).

Traditionally, when the stock market turns bullish, housing prices soon follow. So perhaps it shouldn’t come as a surprise that China’s real estate market is also showing some sign of life. Residential sales in April rose 16% year-on-year after falling in 15 of the previous 16 months. Prices for Soufun’s 100-city index nudged into positive territory last month too, as the State Council’s recent relaxation of property-purchase rules and monetary loosening took effect.

The revival is partly fuelled by investors putting the spoils they’ve reaped from stocks into fixed assets. From Beijing to Hong Kong, home prices are going up thanks to the new money that is being funnelled right back into housing, says National Business Daily.

“Amongst our clients, a lot of them are using money they made in the stockmarket to buy houses,” Wu Hongna, a Chengdu-based property agent, told the newspaper.

According to Wu, many investors think that the A-share market is too volatile and they now prefer more stable investments like property. A recent luxury property development in Chengdu, which costs Rmb3 million per unit, sold out in a month due to the strong investor sentiment. In Beijing, too, a development with a starting price of Rmb30 million per unit, also posted strong sales in April.

Industry insiders think this momentum will continue. “I believe a large quantity of cash will flow into the property market in the fourth quarter,” Ren Zhiqiang, the outspoken chairman of Huayuan Property, wrote on his personal weibo.

Already, property developers are back in action. Last week China Merchants Property partnered with Ping An Life Insurance to acquire a residential site in northern Shanghai’s Baoshan district (formerly an industrial area) for Rmb3 billion. The same week, China Resources Land teamed up with state-owned investment conglomerate Huafa Group to secure a plot in Shanghai’s Zhabei district for Rmb8.8 billion.

China Resources Land and Huafa are so optimistic about the housing market that the price they paid for the land – Rmb38,000 per square metre – is even higher than the Rmb37,000 record that Hong Kong developer Sun Hung Kai paid for a prime parcel of land in Xujiahui in 2013.

Some institutional investors are back in the hunt too. ThePaper.cn reported last month that private equity firm Blackstone is rumoured to be closing a deal to acquire L’Avenue, a commercial complex in Shanghai, for Rmb5 billion. Dubbed as the “shoe building” by locals because of its boot-like appearance, the complex is owned by Macau’s casino mogul Stanley Ho and the LVMH Group.

Still, some experts say it is too early to think that the housing market is out of the woods. The recent pickup in sales and prices is largely limited to first-tier cities (Beijing, Guangzhou, Shanghai, and Shenzhen) and a handful of other coastal metropolises. Smaller cities, however, are still struggling with a severe overhang of excess apartments. These cities now account for more than 70% of China’s total property inventory (in terms of floor space under construction or completed).

And besides, industry commentators say Chinese investors also have more alternatives now, such as investing in property overseas.

For instance, it was announced in April that Alibaba’s co-founder Sun Tongyu has spent $37.5 million to purchase the most expensive penthouse in Singapore in Le Nouvel Ardmore.


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