The housing market is, in his opinion, “one of the healthiest sectors in China”, with sales up 13% so far this year on top of 8% last year, and one of its healthiest sectors. House sales are up 13% so far this year and were up 8% in 2010.
“A bubble really requires leverage,” he said. “The question here instead is one of housing finance.” He backed this up with the fact that 89% of buyers in China are owner-occupiers with only 11% as investors; 23 are first-time buyers; 53% of investors pay in full in cash.
Speaking at a recent Schroders conference, the firm’s head of Asian equities Robin Parbrook, disagreed saying the stimulus in 2008 was huge, to the extent that “the money mainly went into creating a property bubble.”
Adam Osborn, manager of the Schroders Asian Property Fund was reluctant to get drawn on the question of whether or not there is an Asian property bubble, though he did suggest that share prices had already discounted a reasonably large proportion of any bad news.
“If we take a fair value of a listed share,” he explained, “fair would be a 20% discount to net asset value. At the bottom of most bear markets we would expect to see this at 40%, and at real crisis points, like the Asian financial crisis or Lehmans, 60%. Currently we are closer to 40%.”
He went on to say that, with the exception of China, we are not looking at a wall of supply in Asian real estate, corporate balance sheets have not been gearing up for merger and acquisitions and that cap rates have remained well constrained.
