House buyers not hurt by RMB revaluation
By Chen Hua (China Daily)
Updated: 2005-08-04 06:04

Ordinary housing consumers in China do not need to worry about the sizeable real estate price fluctuation caused by the recent renminbi appreciation.

However, investors in luxurious housing or high-end commercial buildings will have to be cautious when making their investments because experts say it will be hard for them to take advantage of the currency revaluation and gain quick profits on short-term investments.

The yuan revaluation will not have any negative impact on the ordinary residential housing market, said Pan Shiyi, a renowned real estate developer.

This is because raw materials for this type of property are mainly from the mainland and the house buyers are almost all domestic residents, he explained.

Meanwhile, the yuan raise would help reduce some building costs because the price of some imported building materials, such as steel, will be reduced, said Wang Chen, a senior analyst at DTZ Debenham Tie Leung (DTZ), a leading real estate consulting company.

About one-fifth of China's steel is swallowed up by real estate projects, and last year China imported 29.3 million tons of steel.

Pan also said after the government's announcement of the currency appreciation, many foreign property fund managers came to him to discuss investments in big cities like Beijing and Shanghai,

"What these foreign funds are interested in are luxurious houses, high-end office buildings and shopping complexes," Pan said.

However, China's foreign exchange reforms and the recently completed real estate macro-management makeover make it very hard for international property speculators to get quick short-term gains on investment, said Wang Lina, a finance professor at Chinese Academy of Social Sciences.

The 2 per cent rise will not add much value to houses, and any added value will be offset by increased tax. This higher stamp duty was introduced at the beginning of June, and was set at 5 per cent of the total selling income for houses owned for less than two years, the professor said.

Moreover, the market is currently not particularly active, especially in Shanghai and other eastern cities, after the government launched a slew of measures to cool down the runaway property market.

Most potential buyers are waiting to see any new market shifts, with very few choosing to buy houses at the moment.

It is hard for the short-term investors to find enough buyers to sell their houses at good prices, said Gu Yunchang, chairman of the Real Estate Association of China.

As a result of the sluggish market, it is less likely that the "hot money" imbedded in China's real estate market will withdraw from the domestic market at the moment, the chairman said.

The government's cooling measures would also exert pressure on future "hot money" seeking to enter into Chinese property market, professor Wang said.

The professor explained that China had just abandoned its peg to the US dollar and moved to a managed floating-rate regime based on market supply and demand with reference to a basket of currencies.

The new system will bring many uncertainties to the exchange rate, making it more complicated for foreign investors to make a big profit on China's real estate sector, Wang said.

On the other hand, foreign investors stand a good chance of earning a handsome profit in China's property market if they choose long-term investments such as providing financing for domestic property developers, said Wang Chen at DTZ.

This would help strengthen domestic developers and maintain the stability of the real estate market, the analyst said.

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