Today, China property prices can rise by as much as 25% when a location becomes more accessible. Imagine as an investor how you would feel buying property in an emerging market that has poor communications. The news of the construction or expansion of the airports would have you jumping for joy
China is about to make property investors very happy people. According to the China Aviation Administration China (CAAC) Chinese airports handled 240 million passengers in 2004. This is a rise of 38.8% from the previous year. The CAAC estimate that by 2010 Chinas airports will handle 500 million passengers. China airports are set to handle this rise in capacity with a series of expansion projects already underway. Beijing Capital International Airport is expanding with a third passenger terminal. The brand new terminal will be finished before the 2008 Olympics and will be able to handle 60 million passengers. Baiyun International Airport has already received the Chinese expansion treatment. Shanghai’s Pudong airport is receiving a second terminal with more planned in the future. The Xianyang International Airport in Shaanxi has ambitious plans for a new runway and terminal.
China investment property
Those who are considering investment in the region must surely view these infrastructure improvements in a positive light. The Chinese real estate industry is about to boom. Foreign investors are encouraged to invest in China and are protected by law. The costs associated with buying property in China are low at only 4.5%, much lower than many European countries. Personal assets and properties are recognised and protected by new Chinese law.
Property is a big driver of Chinese economic growth, and runaway investment in the real estate sector has contributed to signs of a broader overheating. The economy grew by a red-hot 10.2 percent (annualized) in the first quarter of the year from a year earlier, when it grew to the tune of 8 percent per year. Concern about too-rapid growth has prompted the government to raise bank lending rates by 0.27 percentage points last month to discourage borrowing and reduce investment. Officials fear that overheating could lead to a sudden economic crash. Additional measures are in the wings, including hefty increases in property taxes, again to take aim at property developers who hoard land and buildings, a practice that creates artificial shortages and drives up prices
Scarier still is the social unrest that the leadership fears if the economy does not slow down to more manageable levels. This is due to a growing imbalance of wealth rampant in China’s population of 1.3 billion people, wherein thirty-five percent of the population lives in the cities and sixty-five percent inhabits the countryside. There is a system of residence controls, so that if one is lucky enough to be born in a city – and registered as a city dweller – it is easier to get into university or to work at all the large companies and government agencies in the city. If, conversely, one is registered as a rural person there are very severe restrictions on where he can live and work. And this is actually the biggest human rights problem in China today. The majority of this population of 1.3 billion people consists, by law, of second-class citizens who live for the most part in conditions of abject poverty, in rural huts many of which do not even have running water. One can imagine how these people feel when they look at the way their urban counterparts live.
The economic ripples and effects that a speculation in grand style such as this have on market wealth are indeed humongous. Market wealth is defined as ‘the combination of materials, labour, land, services and technology in such a way as to capture a profit’ (Adam Smith). The aftershocks of a bubble of this size that bursts are usually terminal and irreversible: market wealth disappears, it vanishes entirely. And it takes forever to re-build it, right from scratch. Here in the West, the greatest example in recent times is the infamous Black Monday – October 19, 1987 – when the Dow Jones collapsed 22.6 percent in value in a single day! It took nine years for Wall Street to lure investors back.