Concerns over China real estate "pure schadenfreude", says Tiburon
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The western view of the Chinese property sector is pure schadenfruede, says Tiburon Partners’ Mark Martyrossian.
The booming Chinese property sector has long been a central point to analysts’ speculation as to whether the second largest global economy is heading for a hard or soft landing, if at all.
As recently as March, China’s property sector was attracting increasingly nervous attention from fund managers, 14% of which cited it as the riskiest sector for asset allocators.
Martyrossian, a founding partner at Tiburon, has dismissed these views of the real estate market as “schadenfreude”, with western investors voicing discontent more out of sour grapes than calculated honesty.
He says: “I think the western view of Chinese property is pure schadenfruede. We have screwed up our economies in much part by lending too much money to people who cant pay it back and that has partly been in property, sub prime [having been] the poster child. I think a lot of people look across at China and they feel ’we’ve messed it up and I think they are going to mess it up as well.
“Look at the fundamentals; luxury residency is a tiny part of the Chinese property market as a whole, [between 6% and 7%] but it makes better headlines to talk about ten million buck luxury residentials in Shanghai than it does it to talk about 10m 500sq/f boxes of social housing that is being churned out in China and has been for the last couple of years.” (article continues below)
Martyrossian says the primary difference between a property bubble, such as the sub-prime mortgage crisis or the Japanese real estate collapse in the nineties and the Chinese situation is the presence of debt.
“Do I lose sleep over the Chinese property market posing a systemic risk to the economy a la Japan in the eighties or sub prime in the late nineties?” he asks.
“No, because its not built on debt. Property bubbles are dangerous when they are built on debt. Prices may come down.”
Schroders’ Jim Rehlaender has made a similar case in recent weeks, arguing that markets have “unique structural factors offer[ing] it strong support.”
China’s National Bureau of Statistics confirmed that investment in real estate development in the first quarter was over 1 trillion yuan, representing year-on-year growth of 23.5% but four percentage points lower than in 2011.
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