C.Y. Leung covers a lot of ground as Asia-Pacific chairman of DTZ, but as a key player in the creation of China's private real estate market, he finds the bulk of his time is spent explaining the system to Western investors.
"There are many things that are confusing to people," Mr. Leung says. "The market is only 21 years old" - until the late 1980s, all land was owned by the state - "and foreigners are only now expressing a real interest in learning more about Chinese real estate."
So far this year, about 450,000 deals have taken place, the vast majority of them land sales, good for $33.8-billion (U.S.). Foreign investors were in on only 8 per cent of the deals, although there are no restrictions on ownership.
Mr. Leung sat down to answer questions during a brief stay in Toronto this week after giving a keynote address at the Real Estate Forum where he discussed investment opportunities in Chinese property.
What have Canadians asked you about since you arrived?
Many of the questions, to be honest, have been very basic. That is very much a sign that for both China and Canada to work together, both will have much to learn.
How do you feel about the Chinese economy right now? How about the overall real estate market?
The economy has been doing very well - and real estate markets can't be detached from economic performances. This year, China is looking down the barrel of 8-per-cent growth, which is quite outstanding. Much of this is from the funding of large-scale infrastructure projects, such as roads and railroads, and the real estate market has benefited from that. Property values have stabilized, and in many cases prices have gone up.
How will the economy fare once the government stimulus is pulled back?
We don't know yet. There are reports that there will be a meeting this weekend, so by the end of the weekend we may know better. But there is a difference between what China is doing and what the U.S. is doing in terms of [injecting] public money into the economy. The Chinese government is not bailing out companies. They don't have to buy debt. Most of the trillions of dollars going into the economy are to build infrastructure and take care of the environment. Generally speaking, you can expect this to be more positive than throwing lifelines to ailing businesses.
The housing market has been growing rapidly. Is there any concern about a bubble?
There is some concern, but the difference in China is that there is population growth and also economic growth to support new development; therefore, the underlying demand for occupation purposes has been quite strong.
How affordable is home ownership?
Quite. Nearly all cities in China have a high ownership rate, up to 90 per cent. All units were owned by the state until 1988, but now, 21 years later, it is one of the largest real estate markets in the world. And it's also open to foreigners. The Chinese are generally good savers, and families often help.
Does China face similar issues to Western markets? What are default rates like?
Defaults are very, very low. People pay back mortgages as quickly as they can. In Hong Kong, 50 per cent of the housing stock has no mortgage. That is very different than the U.S. situation, where people take out equity when they see an appreciation in value and then spend the money. In China, [it's] the other way around.
Why?
It must be the culture. Whenever I can't explain something, I say the answer is "culture."
How have commercial real estate markets fared over the past two years?
