On the ground intelligence key to not fearing Chinese property investment
Media release – China Property
A failure to understand the nuances of Chinese Government policy around population shifts and urbanisation may have prompted some investment analysts to turn too negative on Chinese property development too soon.
That is the assessment of Premium China Funds Management (PCFM) which is arguing that a thorough understanding of the Chinese Government’s so-called “Hukou” reforms is necessary to add some balance to the overall investment equation.
The “Hukou” reforms were announced by China earlier this year involving expanding urban “Hukou” or residence permits within major cities to 100 million migrant workers by 2020 as part of its plan to rebalance the economy.
The Chinese Government has effectively encouraged targeted population movement to particular cities via the Hukou state registration scheme under which holders of Hukou status are entitled to benefits such as healthcare and education subsidies in their home villages/cities.
In the past, people who moved from rural to urban areas lost their Hukou benefits but the most recent policy changes mean those benefits are now transportable to certain cities meaning that parents will no longer feel compelled to leave their children in their home villages to ensure education subsidies.
Under the reforms, these new urban dwellers will be able to access Hukou benefits in certain cities – mostly tier 2 and 3 – something which will restrict congestion in tier 1 cities such as Beijing and Shanghai where previous urban migration was focussed.
This is a form of centralised planning designed to steer population growth to smaller cities, not unlike the incentives provided by Australia’s state governments to encourage skilled worker migration to regional centres such as Tamworth and Dubbo,
According to Premium China Funds Management’s Jonathan Wu a number of western investors remain spooked by the stories which grew out of China’s rapid urban growth over the past two decades and the “ghost cities” which had been constructed.
However, Wu says that while such stories were certainly true at the time, investors need to understand the scale and geography of the Chinese property investment market – what makes cities Tier 1, Tier 2, Tier 3 and Tier 4 cities – as well as the lessons learned and the impact of resultant Government policy changes. He says there are many nuances to the Chinese Government’s approach which need to be understood and that his firm’s on-the-ground resources have helped it identify where the investment opportunities exist and, equally importantly, where they may prove took risky.
It is on that basis that PCFM has targeted its investment towards Tier 1, Tier 2 and Tier 3 cities, with a particular focus on Tier 2 and the upper segment of Tier 3 cities.
“Most Chinese developers have land banks in many cities in China, normally ranging from 30 to 200 cities, which include tier 1,2,3,4 cities,” Wu says. “However, we prefer developers with more exposure to Tier 1, 2 and top tier 3 cities, which includes about 50-60 cities, among the total about 287 cities in China.”
He says the simple facts of the matter are that China is continuing to urbanise and that while the nation’s urbanisation rate has reached nearly 60%, on the more nuanced Household Register (Hukou) basis, it is only about 43.37%.
“Our bottom line view is that while some of the caution towards Chinese property development is justified, there are investment opportunities for those who have access to on-the-ground intelligence,” Wu says.
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For further information, please feel free to contact:
Jonathan Wu – Executive Director | Chief Investment Specialist
jonathan.wu@premiumasiafunds.com.au
0416 031 676
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Phone: +61 2 9211 3888
Email: info@premiumasiafunds.com.au
ABOUT PREMIUM CHINA FUNDS MANAGEMENT
Premium China Funds Management (PCFM) is a boutique funds management group providing specialist Asian equity and fixed-income funds to both Australian and New Zealand investors.
Capturing the growing economies and influence of emerging Asia, PCFM has developed 4 actively managed funds – the Premium China Fund, Premium Asia Fund, Premium Asia Property Fund and Premium Asia Income Fund.
The funds are managed by a large and experienced team with offices in Hong Kong, Shanghai, Singapore and Kuala Lumpur. The directors and investment managers of Premium and its fund offerings have extensive knowledge in Asian equity and credit markets, wealth management, and other financial services.