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Revitalizing China’s Real Estate: Urgent Call to Lift Housing Restrictions


Benjamin Hughes

March 27, 2024 - 11:19 am


Urgent Call to Lift Housing Restrictions in China to Revitalize the Market

Weijian Shan, Bloomberg

In a recent turn of events, one of Asia's most renowned private equity investors has advocated for the lifting of home-buying restrictions in China. This bold recommendation is rooted in the belief that China is currently not in a state of extreme housing surplus. The proposal comes as a strategic move to invigorate the sluggish real estate market that has been adding undue pressure to an already faltering economic situation.

Adding Insult to Injury: The Economic Freeze

Weijian Shan, the distinguished executive chairman of PAG, a Hong Kong-based investment firm, delivered a candid commentary via email that drew upon an expressive Chinese maxim to describe the exacerbating effect of maintaining buying curbs during a slow market. This metaphor, suggesting the effect is akin to "adding frost to snow", epitomizes the unwelcome intensification of an already severe problem.

Shan urges for a removal of these restrictive measures, noting that various regions have implemented relaxations to a point, but stresses the necessity of complete eradication of such policies. The catalyst behind his assertiveness lies in the successful resurgence of transactions in new homes in Hong Kong, which saw a significant recovery after the government eliminated all demand-side restrictions, thereby reinvigorating the property market.

Debunking Oversupply Myths: A Realistic Examination

A prominent voice in the industry, Shan has openly refuted allegations that China’s residential market is teetering on the brink of a significant excess in housing availability. His arguments counter a former statistic bureau official’s claim, which was circulated by local media, suggesting that China's vast array of residential properties could not be filled even by its 1.4 billion population. Dismissing these assertions as "nonsense," Shan expressed concern for the impact such authoritative statements could have on the broader economy and the perception of global investors.

Within this heated debate, Shan voiced an essential question hinting at the implications of pessimistic outlooks on the real estate sector: If the widespread belief is that the property market is doomed, who would be brave enough to invest in homes? Such sentiments evoke fear and erode confidence, not just locally but among international investors as well.

Furthering his argument, Shan cites the insightful research of Gao Shanwen, the esteemed chief economist at Essence Securities. The January study emphasized the still vigorous sales of second-hand homes in the previous year, reinforcing the notion that demand remains robust despite the challenges facing the sector.

Examining the Numbers: A Statistical Insight

Regarding the numbers, Shan scrutinized residential space data collated over three decades, which show a commercialized residential space totaling 14.4 billion square meters. Incorporating data from the statistic bureau, he calculated an average of 41.76 square meters of living area per person, concluding that this immense space could house merely 345 million individuals. He theorized that, given the construction pace of the last 30 years, it might take another 120 years to create sufficient housing to accommodate China's extensive population.

Economic Downturn: The Property Sector's Struggle

The ongoing real estate downturn, now entering its fourth year, continues to exert significant downward pressure on economic growth and consumer confidence. This sentiment was echoed in early March by China’s housing minister, who described the stabilization of the market as a “severe task” yet to be accomplished.

Debt-Ridden Developers: Creditors versus Shareholders

Shan, who has carved out a reputation as an astute dealmaker in private equity, argued that the responsibility for absorbing the loss resulting from debt restructuring or bankruptcy should rightly fall on the shoulders of the major shareholders of Chinese developers, rather than on creditors. Contrary to his stance, the harsh reality is that global bondholders have been dealt a severe blow by the market's downturn. Bloomberg data indicates that over 250 dollar bonds issued by Chinese real estate firms have defaulted.

PAG, the firm Shan co-founded, which boasts a substantial portfolio with assets exceeding $55 billion, is a prominent investor in the mall operator led by Dalian Wanda Group Co. This group is actively questing for new investors to aid in navigating current financial challenges.

Ripple Effects: The Impact on Consumer Spending

Shan suggests that the dwindling value of properties is also contributing to a weak consumer spending climate. The looming fear of devalued investments is making people reluctant to expend their financial resources. Thus, Shan reiterates the importance of considering the removal of stringent purchasing restrictions in an effort to reinvigorate the economy.

A Call for Policy Moderation: Avoiding Overreaction

The seasoned investor opinions that it's crucial to ensure current policies do not overcompensate and that they should instead be tailored to support a recovery without exacerbating existing issues. Despite the real estate market’s continued struggles and the absence of a significant rebound, Shan advocates for a strategic balance in policy application.

In conclusion, Shans' penetrating insights and recommendations offer a potential roadmap for reviving China's real estate market. By re-evaluating existing restrictions and adopting a more enabling approach, there is hope to restore vitality to a sector that is an undeniable pillar of the national economy.

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