Profile: ChinaChina's central bank moved last week to cool rapidly rising property prices - but buyers with an eye on long-term investments could take a look at Beijing. Clifford Coonan reports
Chairman Mao never saw this coming. Bungalow ranch-style in Beijing's western suburbs, duplex two-garage luxury homes near the city's international airport, mock Tudor palaces accommodating the architects of Shanghai's economic boom and glass-walled visions of Manhattan just a short walk from the Forbidden City.
For even the most hardened of capitalists, including those still reeling from the heady pace of the Celtic Tiger years in Ireland, it takes a bit of getting used to, but China's luxury housing market is a reality now and is looking like a pretty good investment, if you do your homework, take your time and keep both eyes peeled for the right opportunity.
In the capital, until very recently foreigners were effectively restricted to the diplomatic compounds of Beijing, with soldiers on duty outside and a chilly Cold War atmosphere. But the opening up of China and the economic boom of recent years has transformed the city and now both foreigners and mainlanders alike are able to choose where they live, both in Beijing and Shanghai.
Since 1998, the Chinese government has been encouraging local people to buy their own houses, and demand for ownership has been increasing as people get wealthier.
The middle-class represents about 15 per cent of the Beijing population and is expected to grow 1 per cent a year over the next few years. Demand is there and supply has quickly followed.
There are scores of Chinese and foreign developers at work in China's cities, building new apartments and houses at prices ranging from the affordable middle class home to the outlandishly expensive dream house.
For the privileged few, they've been supplying renovated old houses. And they've built apartment blocks with all-in serviced apartments that rent by the day.
Beijing has been slower than Shanghai to develop a real estate market. Beijing is the seat of power, the northern capital, the political city, while Shanghai, the nation's financial capital, tends to be more fleet of foot and fonder of speculation.
Ironically, this difference between the two cities can work to the less speculative investor's advantage in Beijing, particularly people prepared to take a longer-term view of their investment.
"The dynamic in Beijing is different from the one in Shanghai. In Shanghai you have an enormous amount of demand from abroad, basically from overseas Chinese, as well as from other cities in China, while in Beijing you have a little bit of demand from outside entrepreneurs, but nowhere near the kind of intensity in price increases that you get in Shanghai," says economist Arthur Kroeber, editor of the widely respected China Economic Quarterly.
The national average in price rises was around 10 per cent at the end of last year, but in Beijing property prices went up just 3.5 per cent, compared to around 15 per cent in Shanghai.
Dick B R Kwan, managing director for China of ING Real Estate, reckons that while Beijing is a less spectacular market than Shanghai, it's also a more solid proposition for foreigners interested in buying.
"The property market in Beijing is quite stable. I don't see a lot of speculation here and the secondary market is underdeveloped. Local developers don't encourage speculation, it's not like Shanghai," said Mr Kwan.
In a list of China's 10 most expensive houses, five were in Beijing; two in Shanghai, while Wuhan, Guangzhou and Shenzhen all had one each. Somewhat predictably, the two mansions in Shanghai are the most expensive among the 10, with "Sunville" selling at 130 million yuan (€12 million) - nearly 100 million yuan (€9.1 million) more than Beijing's most expensive "Green Sea Manor".
The government-run media says there are worries about the rapid increase in the number of villas being built in Beijing in recent years and forecasts that within the next two years, the number of villas priced as high as five million yuan (€456,000) will be about 5,000 to 7,000, with a total value of around €2.75 billion. The sales volume of real estate in Beijing is currently running at around 45 billion yuan (€4.1 billion).
Property analysts say to look at the north-east of the city or the central business district, with developments such as SOHO. SOHO is the brainchild of ultra-trendy Beijing developers Zhang Xin and her husband and partner Pan Shiyi. They have both their vociferous critics and staunch fans, but whichever side of the fence you fall on, it's undeniable that their SOHO home-office model and their daring approach to architecture has made a major impact on Beijing's luxury housing market and on lifestyle in the city.
While there is inevitably talk that the property market is looking "toppy", most analysts don't see a bubble scenario emerging in Beijing. "Frankly, I don't see a lot of evidence of an unhealthy market from a financial standpoint. I don't see a bubble," says Kroeber. "A bubble arises where people buy property using loan finance and then sell it down the road. You see that a bit in Shanghai but not in Beijing. Here the speculation is more long-term," he said.
The government is keen to stop short-term speculation and late last year it raised interest rates. But the idea of buying one's own home is a new one in China and basically the government is keen to ensure people don't speculate with the bank's money. Loan amounts were also capped recently in Beijing. A maximum of five million yuan (€456,000) now applies for a single individual; previously a five million yuan mortgage applied for each transaction.
ING's Kwan says quality, rather than speculation, remains the defining factor. "In Shanghai you see real speculation, people queuing up. As a developer ourselves, we still see a good market for good properties in good locations. All the good products on offer are getting a good response - our own project, Richmond Park, is doing well," he said.
While everyone agrees that the market is healthy at the moment, there is a short-term danger of oversupply. Even a casual glance around the city shows cranes everywhere, and it can't all be office buildings. The answer is there probably will be too many luxury homes coming onto the market. But it's only expected to be a short-term phenomenon. In Beijing these days, a lot is riding on the city's hosting of the Olympic Games in 2008. The Games have provided the impetus for one of the biggest construction projects in the world.
