This China sector is benefitting from the US trade war

China yuan coins

The U.S. trade war with China may have dented a broad swathe of sectors, but it’s given China’s property market a big fillip.

That’s according to City Development’s CEO Sherman Kwek, who said that around the fourth quarter of last year, the Chinese developers were “actually cheering” on news of the U.S. imposing tariffs on imports from China.

On Monday, the trade war stepped up another notch, with Beijing announcing plans to impose tariffs on US$60 billion worth of imports from the U.S. in retaliation for U.S. President Trump increased tariffs on imports from China Friday.

“I said, ‘why are you guys so happy?’ This could have serious ramifications: Cost of goods may go up, companies may start moving their [operations] outside China. They said,’No, this means that the government will have to start loosening the economy,'” Kwek said at a media briefing Wednesday.

Kwek was speaking on his company entering a deal to acquire a stake in property developer Sincere Property Group for a total 5.5 billion yuan, or around S$1.1 billion.

Those Chinese developers weren’t wrong, Kwek said.

“After the U.S. trade war implications started to become real and started to go from one round to the next round, the Chinese government has started to slowly, very gradually, but certainly, relax these property restrictions,” Kwek said.

Those restrictions had been harsh, he said, pointing to limits on the number of homes each buyer could acquire, loan restrictions and pricing restrictions on developers.

While each city is managed a little differently, the pricing restrictions for condos are being eased, with City Developments able to increase asking prices, Kwek said.

Indeed, after the Lunar New Year period, land prices have “gone crazy,” Kwek added.

“There’s no way people could be paying such high prices if selling restrictions had not been gradually eased,” he said.

China’s real estate investment — including residential, commercial and office — increased 12 percent on-year in April, unchanged from March, Reuters reported Wednesday, citing its own calculation from data released by National Bureau of Statistics Wednesday.

For the January-to-April period, property investment was up 11.9 percent on-year, Reuters said.

To be sure, while Kwek said the trade war has been “helpful” for property developers in the short term, if the tensions drag out long term, he viewed it as a negative.

But Sophia Dai, head of strategic investments at City Developments, noted that even with potential economic negatives from the trade war, a hit to China’s property market was by no means inevitable.

“For the real estate market, especially for China, the residential sector is highly driven by domestic demand,” she said at the same media briefing. “The trade war may have very broad implications, but relatively, in this sector, we should still be reasonably or cautiously positive, because it’s domestic demand driven.”

She added that China’s property market is also “highly driven” by government policy, which is why measures such as price controls have a big impact.

 

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