China Trip Reveals Two Profitable Trends

Robert Hsu, July 07, 2009

In this Issue:

Rising Real Estate Prices: Two Ways to Profit
Two Long-Term Bets on China's Red-Hot Real Estate
The Great Decoupling
Responding to Economic Strength
Health Care Reform Presents Opportunity

Rising Real Estate Prices: Two Ways to Profit

Back in May, we discussed the red-hot real estate market in China. Well, the picture hasn't changed much since then -- real estate remains a booming industry in the country.

I'm currently in the midst of a three-week trip to China right now, and I've been impressed by how China's real estate market has been able to overcome the global financial crisis. Real estate prices are soaring in China's major cities, as people are jumping in and driving prices higher. In fact, over the past four months, some properties in Shenzhen and Shanghai have appreciated nearly 40%!

And demand for new homes remains high in China despite the country's 80% home ownership. That's because Chinese view real estate as an investment, so they often purchase houses and condos rather than investing in paper assets. In fact, many Chinese own more than one home since there isn't a property tax in China -- they often let their properties sit empty, appreciating in value.

The reason why Chinese have been able to purchase new homes amidst the global economic slowdown is the country's high savings rate coupled with increased bank lending. China has one of the highest savings rates in the world, and most Chinese provide a 40% down payment when they purchase a home. And while U.S. banks have tightened up their lending practices, Chinese banks lent out a record $850 billion in new loans during the first five months of 2009.

So what's the best way to take advantage of China's recovering real estate market? Well, while Chinese banks are willing to lend, they're not a viable investment right now. The reality is that the lending risk of Chinese banks has increased recently due to the massive amounts of cash handed out in the first half of the year.

Instead, I advise benefiting from China's rebounding real estate market by investing directly in the country's housing market with long-term bets on residential brokerages and property developers. There are two companies, in particular, directly in line to profit from the surge in China's property market.

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