Real talk on real estate
Jumbo Zhang

The Beijing 2008 Olympics is a giant magnet for real estate investment, but how far-reaching is its pull? Is it a good time to buy real estate in second-tier cities? And could a ballooning worldwide real estate bubble have ramifications for China?
Inquiring minds want to know the answers to all these questions in real estate circles. Experts may not always answer harmoniously, but unless you have a villa empire, their advice could help you conquer this tricky market more successfully.
No bubble in Beijing or beyond
The Olympic effect will cause real estate prices to rise again very soon, said Sun Fei, chief economist of U.S. GlobaLink Securities Inc. “In 2001, when Beijing won the bid to host the games, real estate prices rose 40 percent almost immediately,” he said. Subsequently, with road and transport infrastructure developments in place, and an improvement in the physical and commercial environments, real estate prices continued to rise steadily. This will continue all the way to the Olympic Games, he said.
In real estate markets other than Beijing, here is what five domestic developers are doing…

— Sunshine 100 Co. Ltd. has decided to invest in Liuzhou of Guangxi;
— China Vanke Co. Ltd. is now promoting its Dongli Lake and Crystal City projects in Tianjin, and has paid 600 million yuan for a piece of residential land in Xiamen;
— China Overseas Property has successfully bid for 200,000 sq meters of residential land in Suzhou Industrial Park;
— R&F Properties has acquired vast amounts of land in Xi’an and Chongqing;
— As one of the five major real estate investors that have the full support of the State-owned Assets Supervision and Administration Commission, China Merchant Properties also acquired over 200,000 sq meters of land in Nanjing;
…and here is what two international developers are doing:
— Hang Lung Properties has announced that prior to 2007, it will purchase three to four large plots of land each year in 10 cities outside Shanghai;
— Singapore-based Capitaland has also planned for five to seven projects in Chengdu before 2014.

Analyst Yin Di believes these companies are smart investors. Statistics indicate that the growth rates in the second-tier cities are among the fastest. The best buys would be in mid-size cities surrounding key cities in the coastal areas, he said.
A recent report from DTZ Debenham Tie Leung, a global real estate adviser, suggests that foreign capital is pouring from Beijing and Shanghai into second-tier cities like Chengdu, and Wuhan. Tao Ruhong, researcher and consultant with DTZ Debenham Tie Leung, says that investment funds require his company to compare 20-30 second-tier cities all across China in order to recommend the best city for real estate investment.
Not every market is prospering, however.
On August 22, the Chinese City Development Report revealed that cities such as Shanghai and Hangzhou which saw prices rise dramatically in 2004, have to a large extent seen their gains lost over the last year or so.
Qiu Hong, Managing Director of Beijing Jinchengxin Real Estate Broker Co. Ltd., believes that China is now undergoing a period of inflation after the revival of its real estate market. “Some major cities have already entered the mid-late phase of development and shadows of oversupply are becoming apparent,” he said.
Qiu suggests focusing on commercial properties, especially the independent commercial projects such as restaurants, malls, hotels and car parks.
“These projects are limited in number so demand for them will continue to increase,” Qiu said. “Because the marketization of commercial projects is higher and the government adopts a more laissez-faire attitude, coupled with the fact that the tertiary industry is growing rapidly, returns in this sector will become increasingly stable. Commercial properties are therefore more popular.”
The world and China
On the opposite side of the world, the real estate market is in a very different state.
In the United States, the latest real estate cycle began with a market revival in 1997 and extended to June 2004, with house prices rising at a rate of 20.4 percent per year. However, in the 12 months ending June 2006, the real estate price index managed a mere 8.2 percent growth. At this rate, 2007 may turn out to be the year of falling prices.
Stephen S. Roach, chief economist at Morgan Stanley, predicts that the cooling in the real estate market will be so dramatic that it will shave 2 percent off GDP in the United States over the next year, bringing the U.S. economy to the brink of recession.
Roach warned, “If the real estate bubble bursts, key trading partners of the United States as well as the global economy will find themselves in a dangerous position.”
Still, U.S. real estate prices likely will not directly affect real estate prices in China.
Chinese real estate prices are mainly affected by three key factors-government policy, capital and consumer mentality.
By raising interest rates 17 times straight, the Federal Reserve has finally started to weaken the real estate market. In contrast, the People’s Bank of China has only intervened three to four times to deal with high real estate prices. There remains, however, much room for adjustment, and the government is steadfastly determined to put the market in its rightful place.
State-induced cooling
Rising interest rates and measures to increase the deposit reserve rate have failed to cool the overheated economy, and, of late, the state has introduced administrative measures one after another. On September 5, the State Council announced that it would intensify land control measures, issuing eight requirements to authorities in different ministries and provinces. On September 6, three ministries announced a series of measures to adjust real estate trading. These measures focus on six categories of regulation of illegal behavior, including unwillingness to sell properties until the prices increase, as well as housing accumulation.
Under the influence of macroeconomic adjustments, real estate development investments will be down somewhat, but these adjustments cannot be completed in a few seasons or even one to two years. It is estimated that the Chinese real estate industry will soon step into a period of adjustment that will last for between three and five years.
Currently, the major risk in the Chinese real estate market is that many local governments are still not very knowledgeable about real estate risks and their destructive nature. With prices raised sky-high through endless auctions, investors, buyers and financial institutions lack the necessary preventive consciousness to deal with the risks involved in real estate. Once the bubble bursts, the banks and buyers will all face tremendous risk.
The Announcement Concerning the Strengthening of Land Control Policies, promulgated by the State Council, will cause land supply to be tightened further in all cities. And with that, land prices will go up. For real estate companies with land resources, the value of their assets will increase and they will achieve reasonable results.

(The Daily Mail-Beijing Review  Articles Exchange Item)


Utilizing resources of Central Asian Republics
Mamoona Ismail

Central Asia has a place of prominence in Pakistan’s foreign policy. It is an ideal route for Central Asia’s international trade. However, this route remained disrupted for long because of turmoil in Afghanistan. Pakistan’s Gwadar and Karachi seaports can provide ideal port and transit facilities for the Central Asian republics to establish their trade links with the outer world for the benefit of entire region. The Central Asian states, in particular Tajikistan and Kyrgyzstan, also have an immense potential for the production of hydroelectric power, which is extremely important for Pakistan.
Pakistan has established Joint Economic Commissions (JECs) with all the Central Asian States. The JECs take important decisions to promote cooperation in the economic and commercial fields. A Special Technical Assistance Program (STAP) has been initiated in 1992-93; Pakistan is providing fully funded training facilities to Central Asian states since then. The program includes courses ranging from English language, banking and accounting to diplomacy. In the energy sector, Turkmenistan, Afghanistan and Pakistan signed an agreement in December 2002 for a gas pipeline from Turkmenistan via Afghanistan to Pakistan (TAP), its estimated cost would be about $3.3 billion. The TAP project is a 1,700-kilometer pipeline that will annually supply up to 30 billion cubic metres of natural gas from the Daultabad fields in South East Turkmenistan to consumers in Afghanistan, Pakistan and possibly India. The project is estimated to be completed in five years. The Asian Development Bank is the lead coordinating partner. It has, in addition to financial and technical assistance, played an important role in integrating efforts to finalize the project.
Tajikistan has a potential to be a substantial producer of hydroelectric power. Being the closest geographically to Pakistan of the Central Asian Republics, Pakistan stands to benefit from Tajikistan’s hydroelectric potential. An intergovernmental agreement to that effect has already been signed. Pakistan has also signed an agreement to import electricity from Kyrgyzstan through Tajikistan and Afghanistan. Terrain and weather conditions are a clear impediment for this project, yet both states appear determined to pursue it.
The Economic Cooperation Organization (ECO) comprising Afghanistan, Azerbaijan, Iran, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkey, Turkmenistan, and Uzbekistan provides another common platform to generate economic activity in the region. As Pakistan’s Prime Minister Shaukat Aziz has recently stressed, “the organization needs to be used in result-oriented policies instead of mere lip service”. ECO can be an effective organization if the ECO Trade Agreement, Transit Transport Agreement and the Trade and Development Bank are operationalized effectively.
Pakistan and Kyrgyzstan have a long history of ties, being linked by the historic Silk Road. Kyrgyzstan and Pakistan are signatories to the Quadrilateral Agreement along with China and Kazakhstan, effective since May 2004, which aims at promoting regional trade through Pakistan’s Karakoram Highway and onward road links through China to Kazakhstan. Both countries are keen to increase cooperation in the fields of education, culture, and trade that will further strengthen their ties. The expansion of bilateral ties are set to further increase with the reopening of the historic Silk Road, allowing transportation between Kyrgyzstan and Pakistan via China.
Pakistan’s relations with the Central Asian Republics have strengthened in the past few years, inspiring hope for brighter prospects ahead. The completion of the Gwadar Port is a milestone in this context. When it comes online alongside Karachi shortly, it will provide the shortest access to the Sea for large parts of Central Asia. Pakistan is also giving priority to road and rail links and related facilities for more effective and mutually beneficial access to Central Asia. Air services to Tashkent and Almaty have already been resumed. Similar services to other parts of the region are under active consideration. This process of closer ties is set to receive a significant boost from the ongoing improvement of the political and economic situation in Afghanistan. The completion of Murghab-Kulma road from Tajikistan to China linking to the Karakoram highway to Pakistan is also a significant development. Once operationalized, it will boost the transit trade between Pakistan and the Central Asia.
Economic interests have always been and will continue to be the foundation for the relations between Pakistan and Central Asian states. These have contributed to better understanding and closer cooperation. The exchange of high-level visits has been an important aspect of relations between Pakistan and the Central Asian Republics. It will indeed further strengthen the trade and economic ties and enhance the process of socio-economic development.


World’s 47th corrupt country
Amjed Jaaved

In its annual report on quality of governance, the World Bank has ranked India forty-seventh in the list of 200 countries surveyed for the level of corruption, quality of governance and enforcement of rule of law. The Bank’s director of global governance, Daniel Kaufmann has predicted that India’s fast growth rate of eight per cent will falter unless the rampant corruption is curbed.
Kaufman pointed out that concomitant growth of corruption pari passu with fast economic growth was a lame excuse. He pointed out that several countries (smaller than India) like Slovenia, Botswana, Estonia, Tanzania, Ghana, Mozambique and Nigeria had made substantially arrested corruption and demonstrated improved governance. India could emulate them in improving her score on level of governance. sThe report observes that rule of law is a sine qua non of democracies. But, India has a poor record of enforcing the rule of law.
There are several stages of economic growth. Attaining eight per cent growth is no guarantee for self-sustained high growth in future years. To avoid slow-down in existing level of economic growth, India should launch an all-out war against corruption in various sectors of her economy.
Kaufmann elaborated those widespread practices of graft eventually slow growth in the long term (above 10 years). Corruption leads to poor enforcement of the rule of law, weakens regulatory systems, adds to political instability and makes the government less effective. The cumulative effect of these factors worsening of the quality of governance in a country.
It is significant to note that, despite its tall claims, India has not been able to reduce corruption during the past year. Earlier, Transparency International, in its annual report (London, October 18, 2005) had ranked India 88th in the list of 159 countries surveyed for the level of corruption.
The critics in Indian media are rueful at India’s current rating. They point out that the survey draws inferences from a limited number of households contacted through questionnaires. They assert that India truly deserves the number one position on the corruption scale.
According to analysts, the mechanisms of public accountability in India have collapsed. Corruption has become a serious socio-political malady as politicians, bureaucracy and armed forces act in tandem to receive kickbacks. The anti-corruption cases, filed in courts, drag on for years without any results. To quote a few cases: (a) There was no conviction in Bofors-gun case (Rs 64 crore), because of lethargic investigation (the case was filed on January 22, 1990 and charge sheet served on October 22, 1999). Among the accused were Rajiv Gandhi, S K Bhatnagar, W N Chaddha, Octavio, and Ardbo. The key players in the scam died before the court’s decision. (b) No recoveries could be made in the HDW submarine case (Rs 32.5 crore).The CBI later recommended closure of this case. (c) No progress on the Taj-heritage corridor case, Purulia-arms-drop case and stamp-paper case.
Indian Express dated November 11, 2003 had reported that the stamp-paper co-accused Assistant Sub-Inspector of Police (ASI) drew salary of Rs 9,000, but his assets valued over Rs 100 crore. He built six plush hotels during his association of six years with the main accused Abdul Karim Telgi. The ASI was arrested on June 13 and charged under the Maharashtra Control of Organised Crime Act. Investigations by the Special Investigating Team (SIT) probing the stamp scam had found that the ASI Kamath accepted Rs 72 lakh from the scam kingpin, Abdul Karim Telgi, on behalf of IGP Sridhar Vagal.