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Residential Real Estate Market In China

Dec 25, 2007
China has been a densely-populated country from ancient times. Always it depended for survival on labor-intensive rice cultivation. Cooperation was crucial for China's existence, especially for the making and maintenance of a very complicated system of dikes and irrigation canals.

Chinese people travel less owing to many political and geographic reasons. They remain tied to their village - a system of living repeated for numerous generations. The sequence of planting and harvesting remained constant, leaving very little scope for experimentation - a failed trial would mean starvation. An agricultural hierarchical society gradually emerged. China's real estate market is to be viewed against this historical perspective.

China has the most lively and exciting property market in the world. The real estate property market in China is dynamic and it grows fast in terms of capital liquidity and development pace in spite of many adversities.

The residential real estate market in China is extremely competitive also. There are a number of local and regional property developers. An increasing number of large scale national residential property developers have also appeared on these markets. Competition criteria include geographical location of properties, the types of products offered, price, designing and quality.

There are a number of agencies involved in residential property development, investment, and management. Most of them offer independent property analysis. There are also a number of highly reputed residential property forums specially meant for property owners, developers, asset managers, investors and fund managers, financiers and real estate specialists who are looking for property investment opportunities in China.

It is extremely important to accurately understand the Chinese residential property market, how to locate local partners, and identify quality projects before you buy a property.

Also find out indirect property vehicles such as private equity funds and REITS. You have to assess and access property investment opportunities against risks. Also clearly understand the changing regulations influencing residential property transactions. It is advisable to identify the most appropriate financing system for buying and selling residential real estates.

Compared with the United States and other developed residential property markets, China's real estate market is less experienced and unripe. The resale property industry was almost absent in China a few years ago.

Presently, there are around 25,000 property brokerage firms utilizing over 200,000 agents. In addition, there are also an estimated 20,000 property management companies appointing over 2 million people. A lot of brokerage firms, however, do not possess proper business licenses and certification.

For example, it was lately reported that, out of the 4,000 real estate firms presently operating in Beijing, only around 700 have proper business licenses and certificates. In another recent case study conducted in Shanghai, it was revealed that 982 real estate brokerage agencies were operating without a license and registration with the appropriate and competent government agency. A number of cases of real estate malpractices have been reported in recent years. These malpractices include misleading advertisement, low quality houses sold at a premium price, and delayed transitions.

During the late 1990's, property markets in big cities of China were overheated. Price of prime land in Beijing has fallen from the heights attained in the boom development phase of the early 1990s. The vacancy rate for buildings was 38% in Shanghai and 30% in Beijing in 1999.

Residential real estate experts estimated that it might take two to three years for the vacant spaces to be absorbed if the recent trends continue. The market is now picking up momentum as many residents are upgrading into bigger residences.

China's local residential real estate companies experience many weaknesses. Firstly, they lack experience owing to short history. They have only limited competing capacity due to smaller sizes. They suffer from insufficient capital resources and negative marketing means. Lastly, they have lower management skills - many of them are not service-oriented.

With a view to regulate the property market and protect consumer's rights, the government released a revised model commercial contract in September 2000. It serves as a standard contract code and allows property buyers and sellers to realize what are the risks involved in a property transaction. The government expects that the new contract will eventually help property buyers reduce the risk in their home purchase.
About the Author
Wantanee Khamkongkaew is an independent author evaluating and commenting on leading International Property Consultants in Asia and Greater China , especially CB Richard Ellis.
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