Real Estate Woes

Expectations are that there will be more restraining policies on the property sector over the next half-year due to spiraling property prices and investment despite government efforts to rein in the sector. Although implementation of policies adopted last year remains the focus of 2007, soaring property prices could continue to pose a risk in the next six months, raising the possibility that further cooling measures could be on the horizon, said Zhu Zhongyi, secretary-general of the China Real Estate Association.

This is an interesting issue over here. In the residential market, there is virtually no correlation between market rent and fair market value. Market rent might be US $2,000 per month; the sale price might be $1,000,000. Many landlords purchase new residential properties and never complete the fit out inside the apartment. There is no plan to lease the unit; it is a short term investment with no income stream.

Eventually there should be an adjustment because there is excess inventory in the market and yet a shortage of units available for rent.