Chinese Property ~ Reuters article

This is such a slow death ~ Xover hitting over 1000 and every single hedge fund is setting up gates for their redemption.

Some key extracts from the article
- Month long rally in prop shares could end soon.
- Govt stimulus plan subbed developers.
- Govt plan for social low income housing and to secure ind like cement and steel.
- Chinese prop 10%GDP, recovery in 2001 cos of supply glut,consumer,lending cond.
- CSFB exp drop in further 10~15% in 2009.
- $7bn hot money from property funds in 2007.
- Vacancy in office space to go to 18% from 12%.
- LT trend of urbanisation slowing .. 8m flock to cities but may not do so now.

BEIJING/HONG KONG, Dec 3 (Reuters) - A month-long rally in Chinese property shares could end soon and fresh losses may be in store after a massive government economic stimulus plan snubbed developers who are struggling to survive slumping home sales.

"The winter has really come, and it'll last one or two years," Zhang Baoquan, chairman of Beijing-based developer Antaeus Group, said at a conference in Beijing. "Developers will get no real benefit from the government money," he added. "It's for social (low-income) housing, to secure industries like cement and steel." Rampant real estate speculation, which sucked in billions of dollars in foreign capital last year, led China's stock markets into a bubble in 2007 that burst this year. The Shanghai composite index .SSEC has most more than 60 percent of its value in 2008.

Still, property stocks listed in Shanghai have rallied 32 percent since Beijing unveiled a $585 billion fiscal stimulus package and China's central bank cut rates by an aggressive 108 basis points in the last month. The sector's rise has exceeded the broader market's 7 percent increase in that time.

But recent gains may be a false hope, industry experts and money managers said. A lasting recovery in China's property market, which makes up 10 percent of the economy, could be as far off as 2011 as developers deal with a glut of supply, consumers put off big purchases and tight lending conditions linger.

Credit Suisse strategists expect property prices to fall a further 10 to 15 percent in 2009. "We suggest investors use short-term technical rebounds as exit opportunities to trim their exposures to the sector. Long-term investors should reenter the market only when a more sustainable recovery trend is confirmed, which could come asearly as in the second half of 2009," they said in a research note.

Beijing's stimulus package is focused on infrastructure and building 4 million low-income housing units, projects that are eschewed by big developers because of their low profit margins. Fat-cat developers also garner scant central government sympathy because of big profits they made during a speculative boom.

After a five-year bull run, home sales slumped at the end of 2007, especially in southern cities like Guangzhou and Shenzhen, as government efforts to cool the overheated sector took effect. As a result, unsold housing inventory has piled up to about 20 months' worth of sales, economists say, a bigger oversupply than in the United States, where it is about 11 months.

Nick Yao, a fund manager with Aberdeen Asset Management in Hong Kong, had been trying to find opportunities to tap growth in Chinese property stocks for a long time.

But with many developers struggling with high debts, he decided to take what he called a "conservative" approach by owning Hong Kong-based developers with some commercial Chinese exposure, such as Hang Lung Properties (0101.HK: Quote, Profile, Research, Stock Buzz), Swire Pacific (0019.HK: Quote, Profile, Research, Stock Buzz) and Sun Hung Kai Properties (0016.HK: Quote, Profile, Research, Stock Buzz).

"Hong Kong companies have been through a few cycles of their own so are more conservative and more capable of managing a downturn," Yao said. "And their balance sheets tend to be stronger, with the cash flow they can generate from Hong Kong."

FOREIGN MONEY
Aside from Hong Kong developers, foreign property funds invested about $7 billion in China in 2007, according to KPMG.
Earlier this year, MGPA, a private equity real estate firm partly owned by Australia's Macquarie Group Ltd (MQG.AX: Quote, Profile, Research, Stock Buzz), raised a $3.9 billion fund to invest in Asia, some of which was leveraged and spent on Chinese commercial property.

However, the fund is bit more gun shy on China now and would rather wait until the second half of next year. "Now that property values are falling, it's certainly coming back on our radar, but I think it's too early go in and buy at the moment," said Simon Treacy, the firm's Asia chief executive.

Treacy expected vacancy rates in office buildings to rise to 18 percent in the next year from around 12 percent now. Investors in Chinese developers, and foreign funds run by institutions like ING (ING.AS: Quote, Profile, Research, Stock Buzz), Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), are betting on a long-term trend of mass urbanisation, which has seen some 8 million Chinese flock to cities each year.

However, a sharp slowdown in export manufacturing, particularly in the Pearl River Delta, will probably slow the migration to big cities. And most rural people cannot afford the downpayments on homes in the city, said Ha Jiming, chief economist at China International Capital Corp (CICC).

"People want to work in the cities for 10 years and then go and build their own house back in their village," Ha said. Of course there are China property bulls out there. Adrian Ngan, executive director of research at CCB International in Hong Kong, has been telling investors to buy mid-cap residential developers like KWG Property Holdings (1813.HK: Quote, Profile, Research, Stock Buzz), CC Land Holdings Ltd (1224.HK: Quote, Profile, Research, Stock Buzz) and Shimao Property Holdings Ltd (0813.HK: Quote, Profile, Research, Stock Buzz).

He said valuations have become attractive, with some stocks trading close to book value, and local governments will likely be more flexible on building regulations to put people to work.

That developers would turn to provincial government connections is perhaps not surprising given Beijing's unspoken message to property tycoons, as it tries to focus on shoring up employment -- fend for yourselves.