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Chinese Property Restrictions Impact On Local Developers
Op-ed, Tradeable | 19 March 2013
Related stocks:
C09
By: Simeon Ang
Articles (125) Profile

On 1 March 2013, the Chinese government announced a new series of real estate restrictions as the government grapples with what appears to be a real estate bubble.

The new measures include the following:

  1. A 20 percent tax on profits from selling a home
  2. Down payments and mortgage rates will be increased for second homes in certain cities
  3. An “edict” to cities and local governments to institute “property control targets and detailed implementation plans”

The new measures comes after property prices have once again soared after a period of over-heating in 2010. The Wall-Street Journal noted that prices in Shanghai have risen by 41 percent in 2013. A private survey by Reuters showed that average home prices in China’s 100 biggest cities rose for a ninth straight month in February even though the pace of increase has slowed.

Market watchers are concerned as to how implementation will take place as local governments are expected to release their property control targets and detailed plans by end-March.

Local Developers Feel The Brunt
Stock markets reacted quickly to the news when trading resumed on 4 March. In Singapore, the FTSE ST Real Estate Index slumped 1.4 percent (versus the 0.75 percent drop by the Straits Times Index) by the end of the day.

Source: FactSet, graph comparing returns of the STI (Blue) vs FTSE ST Real Estate (Yellow)

Local developer, City Developments currently has projects either being developed or in the pipeline for development in China. These include:

  1. A luxury residential development at Eling Hill in Chongqing, western China
  2. About 750 high-end residential apartments, an office tower, SOHO units, a retail mall and a luxury hotel on a prime site in Suzhou
  3. About 900 residential apartments and a commercial complex in the heart of Yuzhong District, in Chongqing

City Developments said in its recent earnings release that it had only just received regulatory approval to commence construction on the Eling Hill site. The site had been purchased way back in 2010.

With the recent property curbs that have been instituted in China and with more to come from local governments, City Developments could face further headwinds in the Middle Kingdom. Furthermore, uncertainty regarding what sort of measures will be introduced by local governments could hinder visibility of the situation there.

Singapore To Also Introduce Further Curbs?
The Singapore government has been attempting to rein in property prices since 2009 with plans to raise taxes for luxury home owners and investment properties.

In a latest twist, PropertyGuru said that the government could further tighten rules for mortgage repayments in a further bid to moderate home prices.

Despite this, City Developments remains supportive of the government’s intent to consolidate the real estate market. In a press statement, the group said that it “believes that if prices trend up in a straight-line, it may also fall in the same manner when conditions change”.

With the latest curbs instituted in what is supposedly City Developments’ growth engine, would the property developer feel the same? Unfortunately, emails to seek comment from management went unanswered by press time.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

City Developments  9.880 +0.04 +0.41%   
Business: Co is an international property & hotel conglomerate. [FY18 Turnover] Property development (48.4%), hotel operations (39.8%), rental properties (8.5%), others (3.3%).

Insight: May-19, 1Q19 decreased 29.5% to $746.2m compared t... Read More


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