Empty homes amid the China property boom

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Business Times - 18 Dec 2010

Empty homes amid the China property boom

Hedge-fund manager Jim Chanos warns that Western investors could be left holding the real estate bag


CHINA'S property boom continues 'unabated' and has even picked up since the government enacted policies to cool speculation, said Jim Chanos, the hedge-fund manager who predicted the market may crash as early as 2010.

Home prices in 70 Chinese cities climbed 7.7 per cent in November from a year earlier, even after the government suspended mortgages for third-home purchases and pledged to introduce a property tax. Sales volume jumped 14.5 per cent.

'A lot of regulations in China, they are designed to be skirted,' Mr Chanos said in an interview on Bloomberg Television's Street Smart programme. 'The boom has continued to be unabated. It's actually even picked up a little bit recently towards the end of year.'

Mr Chanos repeated his view that China is on a 'treadmill to hell' because of the country's reliance on property development for economic growth. Millions of apartments remain empty in the country as speculators dominate the market, said Mr Chanos, who also described China's property bubble as 'Dubai times 1,000'.

China's central bank raised bank reserve requirements on Dec 10 for the third time in five weeks to tame inflation and restrain foreign capital, and increased interest rates for the first time in three years in October.

A gauge tracking property stocks on the Shanghai Composite Index fell 0.6 per cent to a one-week low at the 3pm close. China Vanke Co dropped 0.4 per cent on the Shenzhen exchange, while Poly Real Estate Group Co declined 0.6 per cent in Shanghai.

While the year-on-year advance in November property prices was the slowest in a year, values increased for an 18th straight month, according to government data.

China Vanke, the nation's biggest publicly traded developer, said earlier this month that it became the first Chinese developer to post annual sales of 100 billion yuan (S$19.7 billion), reaching a target it had set for 2014 and defying government measures to cool the real-estate market.

Mr Chanos, who was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp, said some Chinese developers are getting more leveraged and are taking more money from international investors, providing opportunities for hedge funds. He didn't name specific stocks.

'They all look very interesting from a short-sellers perspective,' said Mr Chanos, founder of Kynikos Associates LP. 'The Western investor is the one who's going to end up holding the real estate bag here.'

Some brokerages remained upbeat about China's real estate market. Citigroup Inc said this week that the country's plan to boost social welfare housing should be positive for real estate as the government will want a 'stable' property market, and it maintained its 'bullish view'.

Mr Chanos's view is 'a little extreme', Glenn Rufrano, president and chief executive officer of Cushman & Wakefield Inc, the world's largest privately held real estate services company, said in a Bloomberg Television interview. 'The economy is growing and has been growing and the real estate market is increasing in value. The government knows this and they are getting ahead of it.'

Joining Vanke, Shanghai Forte Land Co said this month that its sales volume reached 12.6 billion yuan by November, exceeding its annual revenue target of 11.5 billion. Shimao Property Holdings Ltd said it achieved 91 per cent of this year's 30 billion yuan sales target by the end of last month.

China's property stocks have fallen following the government's policies. The gauge of property stocks lost 26 per cent this year, more than twice the decline on the benchmark measure and the most among five industry groups.

The Chinese government won't loosen measures aimed at curbing real estate prices next year because of the continuing risk of a bubble, Vanke chairman Wang Shi said, Reuters reported on Thursday. The measures have made some progress and moderating the pace of property gains would be an achievement, he said, according to the report.

China will strengthen the controls on the real estate market and curb speculative investment from next year through 2015, Xinhua news agency reported yesterday, citing China's Ministry of Housing and Urban-Rural Development. -- Bloomberg

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