Chinese Real Estate: Getting in on the Next Bubble

Recent inputs regarding investor interest in Shanghai property shows it’s again running very high. There are some key structural reasons this is probably a good time to be considering taking some positions here:

1. The Chinese are now making it easier to buy property. A recent offering calls for investors to come up with a 30% downpayment to receive a 4% loan for the remaining 70%. The 3% deed tax and 0.05% stamp duty is now very low. The capital gain tax has been reduced (for resales within 2 years) to 5% of the gain versus what had been 5% of the entire amount.
2. Recent policy changes to allow the local currency to appreciate gradually adds an additional kicker to returns to external investors that makes this even more attractive. Although exchange rates are unpredictable, most feel that the RMB has been kept down structurally and will tend to trend up over time versus other major currencies.

Caution on China is always a good idea and we know that there is still inventory to be worked off in a number of major cities there. However, the global investor appetite for this asset class looks like it will be aided and abetted by changes in deal terms and exchange rates.

Many investors have gone to China or Hong Kong to cash in on this trend over the last decade or so. Those of us wanting to exploit this trend in a less wholehearted way might look to the new Claymore China Real Estate ETF (TAO) for a simple way to have exposure. We can’t speak to the quality of this ETF but in a market offering few such choices, this one is at least available.

Disclosure: At the time of this writing we hold a few shares of TAO in our own and managed accounts.

Comments

[Larry House:]

Interesting. There is an ETF for anything. I apreciate your caution that this just might blow up in your face. One thing about bubbles: You just don't know when they are going to pop.

Jun 19 02:07 PM

[Urbane Gori...:]

For 16 cents less, you can have E-HOUSE HOLDINGS ADR (EJ), which exhibits teh same chart and has actually turned up (10% today) .. Looks ready for another run to me.

Jun 19 04:47 PM

[Jon Boyd:]

Help me out here. Wasn't Claymore a name of a world war II mine?

Who would think that would be a good name for an ETF?

In any case, interesting recommendation on China real estate.

Tnx

Jun 20 02:08 PM

[backtoreality:]

JON..
You got the name right...china real estate is a claymore mine..LOL
I wonder if any of these people who write about china investments have ever been to that country....it's like the two "experts" who advised our congress on the prospects of invading Iraq..they had both written books on Irag...neither had ever been there..

The blind leading the blind




On Jun 20 02:08 PM Jon Boyd wrote:

> Help me out here. Wasn't Claymore a name of a world war II mine?
>
>
> Who would think that would be a good name for an ETF?
>
> In any case, interesting recommendation on China real estate. <br/>
>
> Tnx

Jun 20 03:48 PM

[Fighting Yoda:]

How much speculation can you do with 30% down! I wish we had similar rules here - would have prevented the dumb bubble.

Jun 20 06:13 PM