China Focus: Overseas funds bolstering China's house prices

Almost 13 percent of real estate investment in China comes from overseas, and 20 percent of local residence buyers are either foreigners or compatriots from other cities or countries, according to a report on Shanghai's finances just released by China's central bank.

In Shanghai, where housing prices have been rising amazingly fast in the past two years, the average price in urban and suburban regions has exceeded 10,000 yuan (some 1,200 US dollars) per square meter.

Some overseas investors, expecting RMB/yuan appreciation, have bought dozens of apartments in China's coastal cities, including Shanghai, according to the State Administration of Foreign Exchange. Many local Chinese have joined in on the speculation, hoping to profit from a jump in housing prices.

In the first 11 months of 2004, over 22.2 billion yuan (2.67 billion US dollars) in overseas funds rushed into Shanghai's real- estate market, 15 billion yuan of which were used for housing development, 12.7 percent of the total investment in Shanghai's real estate development.

Currently, investors from overseas can directly buy local property with foreign currency or Renminbi. Since 2004 foreign investors altogether bought 3.95 million square meters of houses in Shanghai, soaring 85 percent year on year, the report said.

"Overseas investors prefer expensive housing, and 70 percent of high-class houses in downtown Shanghai were sold to overseas purchasers after last October," said an insider who declined to give his name.

During the Jan.-Nov. period in 2004, about one million square meters of commercial housing with prices above 11,000 yuan per square meter were purchased with overseas funds, almost tripling from the same period in the previous year, according to official statistics provided by local real estate administration.

Starting last year, names like Merrill Lynch and Morgan Stanley Investment Bank constantly made headlines for completely taking over real-estate projects in Beijing and Shanghai.

International fund management companies like Morgan Stanley and Lehman Brothers began scrambling for Shanghai's real-estate market. They either directly bought residential apartments and office buildings or set up joint ventures for future estate business.

According to the Economic Information Daily, a retirement-fund management company from Singapore and a German bank are in talks separately with Beijing Capital Land for property in the Zhongguancun district, the so-called "Silicon Valley of China".

Headquartered in Shanghai, the Yangtze Special Situations Fund, with investment from both America and the Shanghai Industrial and Development Company Limited, left no doubt about a 30-million-US- dollar debut purchase of a luxury residential high-rise in Beijing.

In 2004 the total investment made by foreign-funded real estate firms jumped over 65 percent year on year in Shanghai. Currently there are 448 foreign-funded estate development companies in Shanghai, with registered capital of 73.3 billion yuan (about 8.83 billion US dollars), up 35 percent from 2003.

The inflow of foreign funds into China's real estate market not only raises housing prices, but fosters speculative activity, acknowledged Cai Weimin, secretary of the Taiwan Real Estate Policy Institute, which often gives advice to Taiwan compatriots on house purchases in Shanghai.

In 2004, an overseas individual once bought a total of 115 apartments in Shanghai, where almost 20 percent of the houses bought by foreign investors were sold again in a year.

Some experts, worrying about the property bubble created by foreign speculative funds, suggest stricter measures be taken to restrict such inflow. The "hot money" has pushed housing prices to a very high level, making some cities look "prosperous", but does no good to the investment climate as it leads to higher living and business costs, they say.

Source: Xinhua