Zhang Xin, co-founder and CEO of Beijing's largest real estate developer, SOHO China, shares her outlook on China's property market amid the country's tightening policies, and whether the country's property bubble is at risk of bursting.
Q: How has Beijing's moves to cool the property market affected the company?
A: If you are buying homes, it's really badly hit. If you're selling homes, you're really badly hit. Luckily we're doing commercial real estate, and in commercial real estate what drives the sales is liquidity. If people have a lot of money to invest, they want to buy a floor of office. So we're seeing a lot of liquidity still, and I think that if you look at why the government raised the interest rate, it's to tackle against inflation as hot money is coming in, because the hot money is coming in, because they say renminbi will go up. As a result, the interest rate hike would attract even faster hot money. Where does that money go to? Typically, (it'll) always go to real estate, and commercial real estate, in Beijing and Shanghai.
Q: Many economist still fear there is a property bubble in China, but you seem to think otherwise - you have said there is no bubble. Do you still think it's a good time to buy in China? How do you know you're not making the wrong call?
I think there is bubble, you know I think there is bubble. I think I was misunderstood in a previous interview. I've always felt there's a bubble in China...So the capital efficiency is low, unfortunately this is the general macro environment. What gives people more confidence to operate in this general bubble environment, is that the economy continues to grow.
So if you grow, whether there's a bubble, it'll get squeezed out, it'll get digested. But of course, the minute the economy stops growing then it really would be a problem and that's why being careful, staying in a prime location — Beijing and Shanghai — is a strategy to operate in China.
Q: Do you fear that this property bubble we're seeing in China will crash? How big a correction are you expecting?
A: I think the government is doing everything to control this bubble and they're facing a bit of a dilemma. On the one hand, they need the economic growth, so they're stimulating economic growth. On the other hand, this money, the stimulus, always ends up in real estate. This drives the real estate prices up and that's what people talk about — bubbles. I think they're using all the administrative ways of controlling it, which is not to allow people to buy a second home. You can only take one mortgage, not a second one.
Q: How much do you expect property prices to fall by? A lot of people are saying as much as 50 percent. From what you're saying, is it not going to happen?
A: I don't believe (it will fall by) 50 percent. I mean if it's 50 percent, it could be 80 percent if really it's that's severe. And that's anybody's guess. My guess is that with all this austerity, you won't really see it that badly because usually, crisis happens when people have no expectations, when people just think it's always going to be sunny. When someone is always thinking tomorrow's going to rain, you won't see the crisis.
Q: SOHO China has benefited greatly from China's real estate boom. Do you think you can continue to outperform any slowdown and policy tightening here in China?
A: This year we're outperforming last year's pre-sale. Last year we pre-sold close to 14 billion, this year, we've already hit 20 billion. So I think this has been our record year in terms of pre-sales so all in all our sales are doing very well. Our numbers are doing really well. Zhang Xin and her husband built SOHO China into Beijing's largest property developer, transforming the once grey city landscape with their avant-garde developments. As one of the first entrepreneurs to enter the commercial real estate market in China, Zhang and her husband found early success in the "small office, home office" or SOHO concept. Zhang, known for her bold and innovative designs, was the first non-architect to be recognized at the Venice Biennale in 2003. Coming off strong third-quarter profits this year, SOHO is expanding its footprint beyond the capital city, venturing into Shanghai last year.