2014

CEIBS Hosts 3rd China Real Estate Forum

SHANGHAI, Sept. 22, 2012 /PRNewswire/ -- The impact of frequent policy changes on China's real estate sector, the need for clearly defined property tax structures and a detailed roadmap for the planned construction of more than 30 million homes, as well as exploring securitisation as an option for infusing capital into the country's real estate sector were among the issues discussed during today's 3rd China Real Estate Forum. Hosted by the China Europe International Business School (CEIBS) at its Shanghai Campus, the event brought together the political, academic, and business communities to explore how the Chinese real estate industry and individual enterprises can develop healthily and steadily in the long-term. The theme was "The Real Estate Show's Second Act: Who's in Charge?"

After striving to cope for more than a year in an environment of adjustment and tightening, China's real estate industry is facing a test of wisdom and is being challenged to achieve a spectacular turnaround. What role will strategic investments play? How can product positioning and market segments be seized? How can capital risks be managed? These were also among the questions explored today.

After an opening address by CEIBS Executive President Zhu Xiaoming during an opening session moderated by CEIBS Vice President and Dean John Quelch, Prof. Wu Xiaoling delivered the first keynote speech. A Member of the NPC Standing Committee, Vice Chairman of the NPC's Financial and Economic Committee, Former Deputy Governor of People's Bank of China, and Dean of CEIBS Lujiazui Institute of International Finance (CLIIF), Madam Wu spoke on the topic "Striving for System Perfection & Stable Expectations". Making it clear that her comments were being made in her capacity as Dean of CLIIF, she spoke of the need for stable policies in the real estate sector. There have been frequent changes over the last five years, Madam Wu noted, which have contributed to some of the irrational behaviour the industry has seen. She welcomed the government's indication that recently introduced price control mechanisms are temporary and it will gradually allow the market to find its own way. "The Chinese economy is at a crucial point, we will soon have a new administration; it is important that the entire society reach a consensus and talk about the residential property market. We need to find the policy that is right for China," Madam Wu urged. During her comprehensive address, she also touched on issues including: housing supply and the need to regulate distribution, land supply and the impact of local government's heavy reliance on proceeds from land sale, and the need to revisit the existing real estate taxation system. China's property tax, she argued, should be reconfigured as consumption tax in order to curb speculation in the market. These and other issues need to be addressed, she suggested, before the pilot property tax project now in cities such as Shanghai is rolled out to other locations.   

Next, there was an off-the-record keynote speech by Ms. Xie Jiajin. She is the former Chief Economist & Director General of the Department of Housing and Real Estate Industry in the PRC's Ministry of Construction, and an expert at the PRC's Real Estate Market Macro-Control Decision-Making in the Ministry of Housing and Urban-Rural Development. She also serves as Chairwoman of the China Property Management Institute.

The forum's opening session concluded with a final keynote speech by Professor Daniel Quan from Cornell University's School of Hotel Administration, who spoke on "What Can China Learn from America's Real Estate Industry". Arguing that the US' 2008 financial crisis was not caused by securitisation of real estate assets, he suggested that China could benefit greatly from using this method of accessing capital and reducing risk. Analysis of the crisis had shown, Prof. Quan said, that the sub-prime mortgage market is a very small piece of the US' overall capital market and it could not have been the root cause of the 2008 financial upheaval. "It triggered the financial collapse but the crisis could also have been caused by any other multiple triggers," he argued, after explaining that studies had shown that all major crises occur when there is a mixture of increased public and private debt plus a dramatic increase in housing prices. "I don't want you to leave here thinking securitisation is bad. Securitisation is good, but be careful," he said, stressing that the US economy had benefited from this method of financing for 25 years.

The day's first session then focused on "The Real Estate Show's Second Act: Which Way to Go?" Panellists Mr. Zhu Zhongyi, Vice Chairman of China Real Estate Association; Mr. Andrew O K Chow, Vice Chairman of Wharf (Holdings) Limited as well as Chairman of Wharf China Development Limited; Dr. Wang Li, Associate Principal of McKinsey & Company; and Mr. David Ng, Managing Director & Research Executive of Real Estate Greater China, Macquarie Capital Securities Ltd. discussed how the industry can find longer term solutions to its problems. They also analysed whether unclear real estate positioning and planning will affect the nation's economic development in the next decade. Mr. Yang Hongxu, Vice President of E-house China R&D Institute, moderated.

In his opening remarks, Mr. Zhou Zhongyi also spoke of the need to put in place clearly defined, rational policies crafted with the recognition of the significant role that the property market has within the wider context of China's economic growth. Steps that need to be taken, he said, include:

  • introducing a housing development plan for the coming 5 years, 
  • formulating a detailed plan for the construction of more than 30 million units of affordable housing,
  • reducing the gap between supply and demand,
  • focusing on providing adequate housing for the migrant population,
  • reforming the land use system to prevent irrational price jumps,
  • and companies who wish to be sustainable must be ready for when the government implements these and other changes.

After Mr. Andrew O K Chow's brief look at the advantages and disadvantages of operating in the mainland and Hong Kong real estate markets, there was a presentation by Dr. Wang Li. She spoke about urbanisation in China and its impact on the real estate sector. Citing McKinsey data that there will be a 50% increase in the countryside migration rate over the next few years, she told the audience that this would translate into a lot of opportunities for the real estate market. The question is, are sector developers ready to provide the standardised products needed to meet these needs? "That's the challenge urbanisation has brought to developers," she said. She also spoke of the growing trend of developers pursuing larger projects – entire cities instead of merely apartments. One of the issues that have come with this trend is trying to determine, when these developments make efforts to be green, who pays for the added cost.

During his opening remarks Mr. David Ng, speaking from the perspective of an investor, looked at the correlation between growth in the real estate sector and increase in personal income. He anticipates that housing prices will slow, thanks to the measures being taken by the government.

All four presenters then participated in a panel discussion in which they fielded questions from the moderator and the audience.

The focus of session two was "How Should the Real Estate Industry Handle the Second Act?", and panellists offered answers to questions such as: will the national strategic plan to continue promoting urbanisation help the industry, or will streamlined market partitioning and large-scale mergers and reorganisations bring new life to the sector? They also examined the experiences of other countries. 

Dr. Ma Hongman, Host & Commentator from China Business News (CBN) moderated, and panellists were: Prof. Nie Meisheng, Chairwoman of China Real Estate Chamber of Commerce; Mr. Fan Wei, Executive Director & Co-President of Fosun Group; CEIBS alumnus Mr. Wong Chun Hong, Chairman of Topspring International Holdings and Founder & Vice President of Rainbow Department Store Co. Ltd.; Mr. Tian Ming, Chairman & President of Landsea Group Holding Ltd.; and Ms. Jane Lok, Senior Director of the Board at CB Richard Ellis.

Nie Meisheng opened the session, speaking briefly about housing prices. There is a need to reduce prices by 50% in order to make housing more reasonable, she said, adding that it will be difficult to quickly adjust prices, and that the overall situation of the Chinese real estate industry is too complex for short-term solutions. Fan Wei gave an overview of the business strategies of his company, Fosun, while Wong Chun Hong described some of the problems facing the industry, focusing his comments on shopping mall development. "We need to rely on the market, not the government, to regulate the industry," he stressed. Shopping mall developers must take the long-term view, Mr. Wong explained, because it could take seven or eight years for them to break even, and a strong portfolio of shops is crucial to success in the long-run. Tian Ming then spoke about his company Landsea, describing its progress since 2001, when it was founded, and Jane Lok spoke about commercial real estate. Ms. Lok outlined the risks inherent in the commercial sector: financial risks, product risks (wrong product positioning), and operational risks (improper sales and lease strategy, improper trade and tenant mix). 

A question and answer session followed, with audience members raising topics such as governmental policies, real estate development in rural areas, and property tax.

In session three, the topic was "Opportunities in Real Estate Asset Management". Panellists looked at the end of unilaterally raising asset prices, and the beginning of cyclical asset fluctuations in the industry. Real estate enterprises have greater need for professional services in the areas of return on assets, liquidity and asset management, and speakers discussed other aspects of the real estate financial market, and how real estate asset management will likely have many opportunities in the future.

CEIBS Professor of Finance and Accounting Oliver Rui moderated the session, and panellists were: Prof. Daniel Quan, Singapore Tourism Board Distinguished Professor in Asian Hospitality Management at Cornell University's School of Hotel Administration; Chiu Kwok Hung, Executive Director of Cheung Kong (Holdings) Limited; and CEIBS alumnus Liang Xingan, Vice General Manager of Shenzhen WorldUnion Properties Consultancy Co. Ltd.

In his speech, Chiu Kwok Hung reflected that only three years ago, interest rates were low and it was easy to get financing. Many felt that the market would keep going up, and the domestic market was so young that it had not before experienced substantial fluctuations. "Now, many developers are having problems selling commercial real estate because it is difficult for buyers to get financing. In the coming years, access to more financial products will become more important for the market," he said.

The real estate market is in its second phase, Liang Xingan said during his speech, "but real estate is an old business, and stable long-term returns are key to success." He added that those in the industry must make the most of the situation, and carry on regardless of macroeconomic developments. Full life cycle asset management is a new and innovative idea in China, said Mr. Liang, since real estate transactions had traditionally been thought of as a one-time deal.  He urged the audience to start planning a financing strategy before buying a piece of land.

Prof. Daniel Quan then spoke about the impact of the Federal Reserve's QE3 (quantitative easing) on US and Asian markets. QE3, he explained, is the Federal Reserve Bank's open-ended policy of purchasing mortgage-backed securities. The goal of the policy, said Prof. Quan, is to reduce long-term yield rates on low interest bonds, in order to force investors to purchase higher yield investments. A negative aspect of the policy could be inflation. According to Prof. Quan, implications for China and Hong Kong could include an influx of investment from people seeking higher yields, as well as potential downward pressure on the yuan due to deflation of the dollar.

Taking questions from the audience, the panellists discussed investment choices, property derivatives, the PE market in China, diversification, cycles of price highs and lows, differences in Chinese and US stimulus strategies, and rental prices.

Asked by Prof. Rui to sum up their views, Prof. Quan said that he was "cautiously optimistic," Mr. Wong placed emphasis on "sustainable development," while Mr. Liang reminded the audience that there are "still many opportunities in China's real estate market".

CEIBS President Pedro Nueno ended the forum with a closing address. It is important to be realistic, he said, while also stressing, "there is still much optimism in China, and those in the industry must keep a positive outlook."

 

SOURCE China Europe International Business School




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