Richard Brubaker

China: A Look at the Real Estate Picture

Going to take a crack at a few of these:

1) Yes the Chinese love real estate. Part of that is a cultural affinity I supposed as land has always been seen as an asset families should hold, but there is also the structural issue that there are few options outside of real estate... and when the stock market is down, that goes double.

2) Before comparing Guiyang to another city, it is importnat to understand that it is the provincial capital and that as the provincial capital will see growth.

The fund manager, while familiar with real estate valuations, is perhaps too much of a tourist to accurately pick up the trends that are clear as day to the average Chinese resident of X town. Sure, 10km outside of the town is a new town, and right now it is bare, but what about in 3-5 years?

This is a well laid path for many cities (Hangzhou, Chengdu, etc)

3) Bank handouts are clearly occurring. Look at Beijing, and you will see a market that has more stock than it can absorb in 10 years.. but new developments are still breaking ground. At some level, this is about jobs... At another,it is about believing that the domestic market will grow.

4) As to the timeline, and how long the gov't can continue along this path, I myself am growing more concerned about this as well. When fixing the problems 4-5 years ago, China had a lot of free cash flow to draw on without touch reserves. Tax receipts were climbing, trade was booming, and the stock markets were diversifying the pools... but now it is a different story, a different time, and the depth of the pool is being reduced. A pool already earmarked by many who use the mantra that China has "2 trillion in reserves".

R
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