Real estate: China’s god of fortune

On Jan 6, a day after the government announced a grand plan to transform Hainan province into a world-class tourism paradise, retiree Zhou Yafen woke up to see crowds ‘rushing madly to buy apartments’ on the island.

‘Property prices shot up like an arrow,’ said the 59-year-old, who owns a 125 sq m flat in provincial capital Haikou that she bought in 2005. Its value today has gone up by more than eight times.

‘Just one word from the government, and miracles happen! If only I had money to buy another property, I’d be so rich now,’ she told The Sunday Times in a phone interview.

Thanks to a buying frenzy like the one in Hainan, one of the hottest topics around dinner tables and on Internet forums these days is how to bao fa (get rich overnight) by betting your money on China’s modern-day God of Fortune – the government.

All it takes is an announcement from Beijing of a new mega project somewhere and both stock and real estate prices in that area will skyrocket.

In Hainan, for example, property prices soared by 20 per cent in January alone while share prices of companies like Lawton Development, which owns hotels in Hainan, Hainan Expressway and Haikou Agriculture, almost doubled in value within five days of the announcement.

Or just look at Pudong New Area in Shanghai, which is blessed with not one but two mega projects: the World Expo which opens in May and the planned Disney park.

On Nov 4 last year, less than two hours after the long-awaited Disneyland in Shanghai was finally confirmed, a land parcel near the theme park’s future site was auctioned off for an eye-popping 1.19 billion yuan (S$240 million). This price was more than 3.5 times the minimum asking price.

The property fever in anticipation of Disney has gripped Shanghai residents – and scores of rich investors from across China – for several years. In 2006, new apartments in areas such as Chuansha were already sporting billboards covered with dollar signs and Mickey Mouse ears to push sales.

But it was only after Beijing finally gave the long-awaited green light to Disney that the speculative frenzy sent average prices jumping by as much as 25 per cent within one month.

Yet other fortunate places in recent times include Guangdong – one of the focal points of Beijing’s mega high-speed rail project unveiled last year – and Tianjin. Beijing is promoting the northern port city as the gateway to the next frontier of economic growth.

With the advent of Tianjin’s Binhai Industrial New Zone – which has attracted major investments such as the Sino-Singapore Eco-City, home prices in some parts of the once-sleepy city have risen by as much as 80 per cent in the past two years.

These two cities, together with first-tier cities like Beijing and Shanghai, led the 24 per cent hike in average property prices across the country last year even as fears of a bubble grew.

Smaller cities also have a share of the fortune. Chengdu, for example, benefited from Beijing’s massive reconstruction effort after the 2008 Sichuan earthquake. Xiamen was last year identified as a new centre for cross-strait commerce with Taiwan.

Beijing’s ‘magic words’ alone did not spur the double-digit price jumps, said analysts. Economic growth, speculation, a growing number of affluent urbanites and demand for marriage homes financed by couples’ parents were also factors.

Still, ‘hyped-up expectations that state-driven projects are bound to take off in a big way do help to push up sales significantly’, noted Shanghai-based property consultant Sherry Li, who helps Chinese investors scout for such investments.

But such hype sometimes falls flat. ‘Take Dalian. It attracted a lot of attention a few years ago when there were big plans to make it a tourism and oil refining centre. Prices jumped 20 to 30 per cent and then flopped after that,’ said Ms Li.

‘I don’t think the Hainan craziness will last that long either.’

Source : Sunday Times – 21 Mar 2010