PERE Forum Asia 2010: Chinese policy enforcement will hit investment

Jing Ulrich, JP Morgan’s chairman of China Equities and Commodities warned delegates at PERE’s third annual conference in Hong Kong to expect investment volumes in China to fall up to 15% as the government tightens policy.

Investment in Chinese real estate will fall as the government enforces more rigid policies, Jing Ulrich, chairman of China Equities and Commodities at JP Morgan said today.

Policy measures expected to reduce liquidity in the sector include: a 5 percent tax on the resale of residential real estate assets within five years of original purchase; a 40 percent down payment for second mortgages; the minimum down payment on land to be increased to 50 percent; and an increase in low cost and mid-to-low cost housing development.

But the most surprising issue is the increasing minimum national bank reserves ratios which China has raised from 16 percent from 15.5 percent previously.

Addressing an audience predominantly made up of GPs and their LPs, Ulrich said liquidity levels will fall as the government enforces such measures “This came sooner than the market expected,” she said, “but it’s a reaction to increased bank lending.” According to JP Morgan figures, real estate lending in China grew 33 percent on a year on year basis in 2009, which Ling described as an “unprecedented” high.

“As a result property transaction levels went to record levels because of the accommodative lending market,” Ling said.

She said government measures would not only lead to reduced liquidity but also to price falls across the country in 2010 after rising. Values rose by 22.4 percent in 2009. But she said the government measures would ultimately create a “soft landing” and a more stable market.

“The government is keen to support real estate, which accounts for 25 percent of the country’s fixed assets, but it is also keen to control speculative investment,” added Ling.