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DE RUEHGZ #0058/01 0310727
ZNR UUUUU ZZH
R 310727Z JAN 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6843
INFO RUEHOO/CHINA POSTS COLLECTIVE
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RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 000058 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
PACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV SOCI CH
SUBJECT: No Bubble in South China Property Market Say Developers 
 
¶1. (SBU) Guangdong real estate developers and consultants are 
confident of continuing growth in the regional property market, and 
reject concerns about a potential real estate "bubble".  Some 
maintain that affordability, at least among the region's 
professional class, is not on the decline, but likely increasing. 
They are generally satisfied with government regulation of the 
property sector and identified some positive regulatory trends, 
including greater bidding transparency and the government's move 
away from direct control toward a focus on regulating the market and 
shaping people's behavior with tools like a new tax structure on 
second-users of property.  Acknowledging that the recently enacted 
New Property Law would increase demands on developers, some property 
market professionals believe it may provide some needed clarity. 
End Summary. 
 
No Bubble, Sound Fundamentals 
----------------------------- 
 
¶2. (SBU) Despite a sharp fall in Guangzhou housing prices in the 
fourth quarter of 2007, local real estate developers and consultants 
believe the medium and long-term prospects for the Guangdong real 
estate market are good.  C.K. Leung, Deputy General Manager of Hong 
Kong-based New World China Land, called the past twelve years a 
"golden age" for the Chinese economy; he expressed great confidence 
that growth in the Pearl River Delta would continue.  New World 
added 8 million square meters to its land reserve in 2007 and is 
currently managing 36 projects in 20 "high growth" Chinese cities. 
Leung's company is heavily involved in the development of 
Guangzhou's Pearl River New City (Zhujiang Xin Cheng) and expects 
the area over the near term to become the central business district 
of not only Guangzhou, but of the Pan Pearl River Delta region, 
encompassing nine southern China provinces.  New World China is also 
participating in the construction of the Guangzhou Towers, twin 
monoliths which, if completed today, would be the 4th tallest 
buildings in the world. 
 
¶3. (SBU) Real estate professionals appear to agree that there is no 
property market "bubble," at least for the greater 
Guangzhou-Shenzhen urban corridor.  Consultants, such as Guangzhou's 
Hopefluent Group Holdings, indicate that demand for south China real 
estate will remain strong, supported by a high personal savings rate 
and a continuing influx of college-educated professionals. 
Double-digit home price appreciation in Guangdong's major cities has 
been matched by a similar increase in urban incomes.  Hopefluent 
believes that affordability, at least among the region's 
professional class, is not on the decline, but likely increasing. 
 
 
¶4. (SBU) Spencer Pang, Director of the Guangzhou office of DTZ, an 
international property consulting firm which has operated in China 
for 13 years, feels that the fundamentals of the local real estate 
market are sound.  Guangzhou real estate prices are still a good 
value as compared to other first-tier cities like Shanghai, and the 
provincial government has expressed its desire to upgrade 
infrastructure to match international standards. Other government 
actions favorable to the real estate market, according to Pang, 
include a loosening of mortgage policy to make second mortgages 
easier to obtain. 
 
Satisfaction with Regulation, Changing for the Better 
--------------------------------------------- -------- 
 
¶5. (SBU) South China real estate professionals are generally 
satisfied with government regulation in the regional property market 
and identified some positive regulatory trends.  Hopefluent's 
president Fu Wai Chung discussed how new bidding requirements have 
increased transparency in land deals and have contributed to 
increased prices.  The government has moved away from direct control 
toward a focus on regulating the market and shaping people's 
behavior with tools like a new tax structure on second-users of 
property.  Mr. Fu also felt that the authorities appear willing to 
allow the market to become more consolidated, with several big 
companies accounting for the bulk of market share, possibly because 
such consolidation simplifies regulation. 
 
¶6. (SBU) Real estate professionals are watching closely the 
implementation of the New Property Law, which went into force in 
October of last year.  Although the legislation was initially 
publicized as providing greater protection to private property 
rights, subsequent interpretation has underscored the continuing 
ability of authorities to acquire land from residents in the name of 
public interest.  This power was exhibited in late December, as 
Shenzhen police used high-pressure water cannons and tear gas to 
evict several property owners who had refused to make way for a 
subway project. 
 
¶7. (SBU) Acknowledging that the law will make land acquisition less 
 
GUANGZHOU 00000058  002 OF 002 
 
 
"smooth" for private developers, Fu Wai Chung sees a payback in 
terms of greater clarity.  Fu commented that the new law could 
enhance the prospect of the rule of law and stability in the real 
estate market, compared to the previous environment in China. 
Developers accept this concept, per the consultants, but are waiting 
for more examples of the government putting the new statute into 
practice.  In the meantime, says DTZ's Pang, they're advising 
clients to avoid land already occupied by tenants, and develop 
unoccupied real estate instead, "just to be safe". 
 
Land Supply - a Government Concern 
---------------------------------- 
¶8. (SBU) The greatest challenge in Pearl River Delta property 
markets is the availability of land for development.  In addition to 
developers, government officials from the Guangzhou and Guangdong 
Land Bureaus also emphasized this issue.  The provincial bureau 
forecasted continuing government support for lower-income housing 
and increased scrutiny on high-dollar projects such as villas and 
golf courses.  Representatives from the city bureau focused on the 
need to balance economic development with maintaining adequate 
farmland.  Guangzhou developers remain confident, but limited land 
supply could eventually impact their ambitious plans for growth. 
 
Goldberg