In October, the news came out that some international investment institutions planned to undersell their properties in China. Did they smell the crisis on the Chinese property market?

In October, the news came out that Morgan Stanley, Citibank, Lehman Brothers and some other international investment institutions planned to undersell their properties in China. When the foreign investors who entered the Chinese market in the early time were looking of the opportunity to sell their properties in China, the other foreign investors slowed down their steps into China. According to the analysis, the Chinese property market has been under depression for nearly one year. Maybe the foreigners sensed the crisis on the Chinese property market.

The Foreign Investors’ Seeking for Changing Hands

Since 2003, foreign investment institutions have been entering the Chinese market one after another, and they have been acquiring high-quality projects everywhere. According to the incomplete data, the purchasing sum was over 35 billion Yuan (USD 5 billion). Experts estimated that the market value quite increased, because of the continuous increase of the Chinese house prices in recent years. In the first half of this year, foreign investors still were looking for good-quality projects, although the Chinese property market was under depression. Their buying will was still very powerful.

But in the third quarter of this year, the number of foreign investors in the Chinese property market decreased unmistakably. According to the statistics, in that period, there were only 3 foreign buying cases in Shanghai, while Shanghai used to have the most popular property market for foreigners. Yet foreign investors who entered China in the early period were seeking for changing hands. In October, Morgan Stanley, Citibank, Lehman Brothers, Merrill’s Peril and some other international investment institutions began to look for buyers, preparing to sell the property assets which they bought in China.

A while ago some rumors came out, saying that the foreign investors undersold their properties in China and that they were planning to withdraw from the Chinese property market. Some experts even think that the problems on the Chinese property market already exist for a year. It just seems really hard to get rid of the trouble. Did the foreign investors sense the crisis on the Chinese property market?

Foreigners’ Waiting and Watching Attitude in a Short Time

“A part of the investors entered the market in the early time. They sell or transfer their property according to their strategic adjustment and capital demand. However, new foreign investors come into the Chinese property market at the same time. This is related to the investment strategy and capital arrangement of the investors. Since there is “going-out” and “coming-in” simultaneously, the phenomenon mentioned above can not be called undersell nor withdrawal from the Chinese market,” said Huang Zhuowei, a board member of the Gaoli International Property Corp.

“Recently, fluctuation and adjustment are occurring to the Chinese property market. Meanwhile it also brings about the investment opportunities for the market. After all, from the long-term view, the need of the enterprises and residents is powerful and everlasting,” said Huang Zhuowei. At the moment, China is still one of the countries whose economy continues the uphill trend. With the degeneration of the global economy, especially the one of the developed countries, China can become the safe port for the capital and the place where the foreign enterprises’ increasing points are.

The crisis of the global credit market has resulted in the crunch of the flow capital. For the international investment institutions on Wall Street, selling their property for regaining capital is their first need. However, the collective sell of the international investment institutions might have a further impact on the market confidence.

According to Huang Zhuowei, the bank will become more conservative in credit because of the increasing uncertainty brought by the fluctuation of the global financial market and the adjustment of the Chinese property market. This will bring forth more difficulties for the financing. In a short period the investors probably will become more and more cautious about their investment in properties. It is certain that the foreign investors will hold their attitude of waiting and watching for a while. But they still hold optimistic attitudes towards the Chinese property market in regard of the medium- and long-term view. Many foreign investors are now making the project reserve and searching for the best investment opportunities. Once the market conditions improve and the bank credit loosens, the foreign investment institutions will be vigorous again.

Entry into the Crucial Stage for the Chinese Property Industry

According to the report of Guangzhou Daily, Fan Jianping, chief economist and director of Economy Forecast Department of the State Information Center, said that China was making preparations for the crunch in the foreign demand in this year. However, the extent of the adjustment of the two main consumption industries (property industry and auto industry) was far beyond the expectance. Take the property industry for example. The Chinese domestic property industry just began its adjustment period, during which the business volume apparently will decrease. According to historic discipline, the decrease of a business volume will be followed by the reduction of the prices. For example, in the USA house prices reduced one and a half year later than the decrease of the business volume. “The Chinese property industry has entered a crucial stage in which the volume and price decrease simultaneously.”

The global financial crisis becomes more and more severe, and the international hot money begins their actions. According to Fan Jianping, in August there was an obvious signal for the first time, showing the international hot money began to withdraw from Mainland China. (Our magazine had a report about this in the September edition.) “The withdrawal of the foreign investors does not mean that they hold a pessimistic attitude toward China. They just want to offset the deficiency of the money in the markets of their own countries,” said Fan Jianping. In October, Goldman Sachs and JP Morgan Chase were all busy with changing their property into cash to solve the flow problems.

“It becomes more and more likely that the Chinese economy will take a downhill trend during the declining period of the world economy. In 2009, it will be hard for China to maintain the growth rate it had the last couple of years. The adjustment to the structure and period, together with the decline of the international economy, will bring more and more difficulties to the Chinese economy.”