China Vanke Chairman Says Country Faces Risk of Home Bubble
China Vanke Co. (000002) Chairman Wang Shi said the country’s property market faces the risk of a “bubble,” reiterating concerns the nation’s biggest developer by sales raised three months ago.
The bubble isn’t “light,” Wang said at a conference in Shanghai today. “If the bubble lasted, it will be dangerous.”
Home prices have been increasing even as the government in March stepped up a three-year campaign to cool the market, which has included raising down-payment and mortgage requirements, imposing a property tax for the first time in Shanghai and Chongqing, and enacting purchase restrictions in about 40 cities. New home prices jumped 6.9 percent in May, the most since they reversed declines in December, SouFun Holdings Ltd. (SFUN), the country’s biggest real estate website owner, said.
Wang said in a March CBS Corp. (CBS) broadcast of the 60 Minutes news program that the housing bubble could spell “disaster” for China’s real estate market and that debt held by developers is a “serious problem.”
He said today he disagreed with the news program’s conclusion that the bubble will burst immediately, as the housing market in the country is very diverse. He referred to “ghost towns” where homes are built and left unoccupied, while as much as 60 percent of other housing projects in other cities are snapped up the first day they’re put up for sale.
“You can’t generalize for the Chinese market,” he said. “Then of course, if the bubbles are not controlled, the result will be catastrophic.”
The average price in China’s 10 biggest cities, including Beijing and Shanghai, jumped 9.7 percent from a year earlier to 17,202 yuan ($2,805) per square meter last month, up 1.1 percent from April, SouFun said.
Shares of Shenzhen-based Vanke fell 2.9 percent to 11.49 yuan at the close of trading, the most since April 23, while the Shanghai Composite Index (SHCOMP) lost 1.3 percent. The gauge tracking developers dropped 2.7 percent, the most among the five industry groups in the benchmark.
The government called for higher down payments and interest rates for second-home mortgages in cities with “excessively fast” price gains and ordered stricter enforcement of taxes, in the latest measures announced at the beginning of March.
The “long-term dynamics” of China will create “enormous opportunities” in the country’s real estate market, said Rob Speyer, president and co-chief executive officer of Tishman Speyer Properties LP, the owner of New York’s Rockefeller Center, in an interview in Shanghai today.
The closely held New York-based developer is a long-term investor in China, Speyer said. Tishman has developments in four Chinese cities: Shanghai, nearby Suzhou, the western city of Chengdu and Tianjin in the north.
Vanke began to expand overseas this year as Chinese developers take advantage of demand for real estate around the world from Chinese nationals and as prices at home soar. Vanke signed a deal with Tishman in February to develop two residential towers in San Francisco. Ground breaking of the project will be on June 26, Speyer said today.
“There are three reasons why we invest abroad: first, we go out to industrial developed countries to learn and prepare for China’s city transformation,” Wang said today. “Secondly, we would like to balance our investment. Thirdly, we follow our customers: as Chinese buyers go to the U.S., so do we.”
Vanke has 98 percent of its investments in China and planned to have 20 percent internationally, Wang said without giving a timeframe.
The developer has carved out a market niche for itself by focusing on smaller homes that appeal to the mass market, helping boost its sales. Property sales at the company rose 14.5 percent to 14.2 billion yuan ($2.3 billion) in May from the previous month, the company said in a statement on June 4.
The reason Vanke has managed to do well even as the government has implemented curbs is because it targets “the real demand,” Wang said today. The smallest apartments the company sells are about 14 square meters (151 square feet), while its mass-market units are 60 square meters to 80 square meters, he said.
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