China real estate dominated by locals

KUALA LUMPUR: Malaysian developers keen on expanding into the real estate industry in China should team up with local companies or get into areas that have not been fully developed, advised China's chief representative of the Economist Group Steven Xu Sitao.

Xu said China is on the way to becoming a mid-income country and unlike sectors such as telecommunication and energy, there is not much government interference in real estate. Nevertheless, "Just because real estate market is booming in China, it does not mean you have to get involved as it's a very local game," he told participants at the FIABCI-Malaysia Global Summit 2009 here on Oct 3 with the theme 'Reviving the Economy through Real Estate Growth'.

Xu said the real estate market in China is still very young. "30 years ago, in the 70s, flats were allocated by work units and it was common for three or four generations to live under the same roof, and in the 80s, work units still remained the only source of housing as renting was illegal and only a few people could afford commercial flats. In the 90s, the selling off of flats by work units caused a strong demand for housing. So, we are still looking at a high number of first time home buyers in the country," he said in his talk on 'Recovering from the crisis: lessons learned and opportunities for real estate markets and the global economy'.

He added that China's economy is already seeing recovery with a likely 3Q growth of 9%-10% (government target was 8%) and estimated double digit growth for 4Q. he said Chinese consumers continue to buy cars and homes. "Quite often, when Chinese people buy cars, they would also like to upgrade their homes," he said, explaining the relation between both industries and Chinese consumer behaviour.

On how Malaysian properties can be marketed to the Chinese, Xu said Malaysia has extremely affordable amenities and healthcare facilities. "Malaysia could play as a stepping stone for Chinese families before they proceed to the United State and United Kingdom," he said.

Xu, who is also director of advisory for the Economist Intelligence Unit since 2004, said policies should be more favourable to the private sector for a more stable environment: "This would mean tax reduction for corporate and personal income tax, as well as relaxing equity issuance. Financial liberalisation is the key to China's sustainable development." Inflation in China stands at -0.1%" Job creation is very important, he added as each year there are 7 million university graduates who need jobs in the country.

According to Xu, China will remain the biggest exporter of savings, with an estimated current account surplus of US$355 billion. Foreign reserve stands at USD$2.2 trillion and Xu estimated that by the end of next year, it will be US$2.5 trillion. "There is a low deposit ratio in China, at 67% compared to other countries, and this means while credit growth is explosive, deposit growth is also very high. If a bubble bursts, our banking system is strong and our balance sheet will likely to expand. I am not saying Chinese banks are better, they are just in  a more protected environment compared to other countries," he said. Deposit ratio for United Kingdom and Australia, for example, is 123% and 143% respectively.