China’s Real Estate Market Giving Developers Deep Pockets

This week’s news that property moguls landed three...

This week’s news that property moguls landed three of the four top spots on Forbes Asia’s annual list of the 40 richest people in China highlights an interesting trend — China’s real estate tycoons.

That includes 26-year-old Yang Huiyan, who was named the richest person in China this week, with shares of the development company her father founded, Country Garden, valued at about $16 billion.

As the U.S. sinks further into housing despair, China’s residential sector is booming. Real estate investment development grew 29 percent in the first eight months of 2007 to 1.4 trillion yuan, or $186.5 billion, the International Herald Tribune reports.

Why All the Excitement?

China’s stock market is seeing its value rise along with the country’s booming urbanization — causing, naturally, a need for housing. As such, developers are busier than ever, and many are opting to go public to take advantage of the strong stock market.

That’s a treat for international investors who are eager to add a bit of China’s economic strength to their portfolio, says.

Some successes:

  • Shares of Beijing property developer Soho China soared 15 percent Monday on their first day of trading, the International Herald Tribune reported. It raised nearly $1.7 billion — as much as Google raised in its 2004 initial stock offering in the U.S.
  • Morgan Stanley has helped raise $6 billion over the past three years by taking eight Chinese real estate companies public, including Shimao, Agile and Country Garden.

But Is It Too Much Excitement?

China’s real estate market is so strong, in fact, that the government has recently tried to curb it with mortgage interest rates and investment-geared apartment down payments.

That’s a smart approach to not only try to control rising housing costs but to also prevent a real estate market bubble similar to the current U.S. situation.

However, it’s not clear if it’s working. Housing prices are still rising and real estate stocks are still hot, according to the Herald Tribune.

Is China poised for a housing decline? Consider the fact that last year’s richest person in China, according to Forbes, was retailing entrepreneur Wong Kwong Yu, said to be worth $2.3 billion.

And now, just a year later, the richest citizen is sitting on $16 billion? That’s a big increase, indicative of the big money that’s flowing through the real estate market and around China right now.

The U.S. situation may be unique in many ways — true, our banks’ and credit agencies’ subsequent credit crunch didn’t make the economy better (and may be causing more pain as lenders who found loans several years ago don’t qualify for new ones and housing defaults as rates rise).

Some may argue that the U.S. housing boom was fueled by pushing people into homeownership with risky programs before they were financially ready for the responsibility, and not by rapidly growing urban centers and population need, as in China.

But examine how much money real estate could add to a person’s holdings in a year in China — making that person’s wealth replace the nation’s richest person’s seven times over — and one wonders, no matter what factors are causing the housing boom, if China’s economic dependence on it makes China any safer.