New taxes debut on Friday, CEO predicts doom on Sunday, stock tanks on Monday, bond sale oversubscribed on Thursday. That’s how the market went for China Vanke last week, and it may be the best available microcosm of enduring investor belief in China’s real estate sector.
As faithful readers of Mingtiandi will remember, the Chinese government reemphasized its resolve to tamp down housing prices by announcing new measures and stricter enforcement of existing property market policies on Friday March 1st. The new government moves mean that some housing transactions may be taxed at 20 percent, rather than at the 1-2 percent rate they were taxed at previously.
In an event that was likely a coincidence, but nonetheless ill-timed if you are a China real estate investor, China Vanke’s CEO Wang Shi painted pictures of catastrophic property market meltdowns during a US television interview on Sunday March 3rd.
A 60 Minutes segment which featured Wang, along with SOHO CEO Zhang Xin, was seen by millions of American who heard Wang say that homes in China were too expensive and when asked if there was currently a bubble in the Chinese property market, he said: “yes of course.” Wang even predicted “disaster” if China’s property bubble were to burst.
Following these twin cataclysms, the market acted in predictable fashion on Monday, October 4th, by punishing most China real estate stocks. Poly Real Estate Group plummeted 10 percent, the maximum allowed for one day, Longfor Properties sank 5.5 percent, and Wang’s China Vanke was also down 10 percent on Monday.
The gloomy outlook was reinforced by stories of Chinese besieging property offices to complete transactions before the new policies were implemented, and by reports of mass divorces as married couples attempted to skirt the restrictions on properties per household.
The fact that Wang would be making his apparently negative comments on American network television was made even more surprising when you consider that Vanke was conducting a road show for a US$800 million bond last week.
However, despite the government measures and the developer’s own predictions of doom, Vanke, announced late on Thursday that the five-year bond was well received by international investors, attracting a US$7 billion order book. Fitch’s rating service gave the bond the highest rating of any PRC developer at Baa2/BBB+/BBB+.
So what will it take to dent investor confidence in Chinese real estate? All markets eventually go down, but evidently it will take more than announcements of new taxes and ill-timed comments by executives to slow down China’s property train.