When one of the country’s leading property developers says the property market is distorted, ought to start listening. “Real estate prices should only go up because people want to actually use the space, but at the moment we can see more and more empty buildings across the whole country and in every real estate segment,” Ms Zhang Xin said. Zhang Xin is chief executive of Soho China, one of the country’s most successful privately owned property developers. She’s built her fortune in China’s explosive real estate market.

“In Manhattan, they have vacancy rates of 10-15 per cent and they feel like the sky is falling, but in Pudong [the central business district in Shanghai] vacancy rates are as high as 50 per cent and they are still building new skyscrapers,” she said recently in an FT interview. “If you look at GDP growth, then China looks like a new engine driving the global economy, but if you look at how growth is being created here by so much wasteful investment you wouldn’t be so optimistic.”

The central government’s recent re-introduction of a real estate tax on properties in which people have no intention to live in will slow some speculation; however, this action has no effect on the just as frothy commercial real estate sector. Also, hard core residential real estate flippers need simply go to the next province over to avoid onerous scrutiny and taxes on additional investments. In other words, expect to see little if any deceleration in the inflation rate of China’s property market any time soon.

Further reading:

FT (Nov 18, 2009), FT (Nov18, 2009), FT (Dec 10, 2009)

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