Chinese Love Vietnam Property for All the Wrong Reasons

The market for luxury apartments looks a lot like the mainland’s did 10 years ago. Investors lured by the familiar aspects should think again.
By Shuli Ren

A property boom with Chinese characteristics.
Looking for the hottest residential real estate in Asia? 

Go to Saigon. 
Ever since Vietnam allowed foreigners to own apartments in July 2015, its luxury housing sector has been on a tear. 

Three years ago, when local developer Dai Quang Minh launched the first residential complex in the Thu Thiem area – a 657 hectare grassy plot across the Saigon River from the central business district – the going rate was $2,000 to $2,800 per square meter. 

The Metropole, a nearby project slated for June, will likely cost more than twice as much, between $4,500 to $6,500 per square meter.
Last year, luxury home prices soared 17 percent, while the rest of the residential market stayed largely flat, says Dung Duong, a research analyst at CBRE Group Inc., a real estate services firm.
It’s no surprise, then, that most Vietnamese are priced out. 

In 2018, only 23 percent of luxury homes were sold to locals, outpaced by mainland Chinese, CBRE estimates. 

South Koreans and Hong Kong residents followed closely behind.
To the Chinese, Saigon is irresistible. 

As early as 2016, marketing brochures touted the city as Vietnam’s Shanghai, and Thu Thiem as a newer Pudong, the glitzy central business district that rose from abandoned farm land. 

As they see it, Vietnam now is China a decade ago – a politically stable Communist country that can reap riches through exports and a friendly relationship with the U.S.
And for Chinese investors used to sky-high prices at home, Vietnam's luxury apartments seem like a good deal. 

Earlier this year, China Vanke Co., the third largest developer on the mainland, launched a riverside project in Shanghai’s Pudong with units priced at more than $15,000 per square meter, more than double the Metropole project.
There’s a major pitfall to that logic, however. 

Vietnam today looks nothing like China did 10 years ago.
There’s little point to a luxury condo without nearby infrastructure to support it. 

Keppel Land Ltd.’s Estella Heights is a case in point. 

Advertized for its family friendly location – across a busy highway is a residential area full of international schools and small cafes – the apartment complex has beautiful rooftop swimming pools and a children’s play area. 

Yet, right now, there’s no overhead bridge to walk to the school district. 

Plans to start one are hazy at best.
As for that metro every real estate agent is talking about: It’s being delayed – again. 

The city broke ground on its first subway line in 2012, but financial problems, such as ballooning costs and unpaid bills to Japanese contractors, keep coming. 

The finish date was pushed to 2020 from 2017, and even this deadline may not be met. 

Shanghai, in contrast, finished its first metro line on schedule in 1995. 

It’s built a dozen more since.
From a fiscal viewpoint, the comparison is equally stark. 

At 61 percent of GDP, public debt is edging close to its legal cap of 65 percent, giving Hanoi limited means to spend on infrastructure. 

Ten years ago, China had much more flexibility. 

To insulate its economy from the fallout of the financial crisis, Beijing launched a 4 trillion yuan ($586 billion) fiscal stimulus, building roads, metros and railways that transformed Chinese cities into efficient transportation hubs.
Even if Vietnam decided to lift its public debt ceiling, there’s very little wiggle room. 

A dwindling global trade pie puts the nation’s current account surplus at only 2.7 percent of GDP. China, on the other hand, had a surplus of more than 10 percent a decade ago. 

At that point, Shanghai looked like a big construction site; Saigon feels alarmingly quiet right now.
Back in 2006, apartments at riverfront locations in Shanghai’s Pudong district went for roughly $1,800 per square meter. 

In Saigon, you’re paying more for 20-year-old infrastructure. 

This market is getting too heated – and yet 80 percent of all buyers last year said they purchased for investment purposes. 

What gives?
Meanwhile, all of this is bad news for the Vietnamese. 

At this pace of foreign buying, Saigon is looking like it’s being colonized all over again.

The Exiled Chinese Billionaire With a Mar-a-Lago Membership

By Scott Cendrowski

Guo Wengui, also known as Miles Kwok

If you missed the latest billionaire scandal in China, you could be forgiven.
The case of Guo Wengui, also known as Miles Kwok, the billionaire property developer of Beijing Zenith Holdings, has mostly been carried out in Chinese language sites and through Beijing's propaganda machine.
The only people to make sense of the disparate stories are keen observers of elite Chinese politics. Those include the English language newsletter writer Bill Bishop, who has chronicled the case over the last two days, and New York Times reporter Michael Forsythe.
Here's what is clear. 

It is always dangerous to be a billionaire in China, especially one in real estate. 

Local governments control the land, and graft almost always lurks behind the deals that turn real estate from public to private.
Guo made his money through real estate. 

He's lobbed corruption accusations at China's most powerful, and the government has returned the insults. 

This week China succeeded in getting Interpol to call for Guo's arrest.
The latest episode is a growing embarrassment for the Communist Party particularly because it questions whether Xi Jinping's anti-corruption campaign can truly take on the China Communist Party's endemic corruption. 

Guo's accusations of corruption climb to the highest level of Chinese politics.
Here's the basic rundown:
After accusing officials of corruption throughout his career—according to investigative reports in Chinese media—Guo has recently taken on a deputy minister of Public Security. 

Guo was scheduled to give a three-hour interview to Voice of America on Wednesday, during which he promised "a nuclear bomb of corruption allegations.”
But after an hour, the interview abruptly stopped. 

Chinese officials pressured Voice of America to cancel the interview, an official with the broadcaster told the New York Times.
Guo's staged his latest interviews from the U.S., where he arrived in 2015, reportedly after his ally, former spy chief Ma Jian, was detained in an anti-corruption case. 

In the U.S. he has joined Trump's Palm Beach Mar-a-Lago resort, a fact that could ratchet up China-U.S. diplomatic intrigue in his case.
Since then, Beijing has staged a counter attack. 

Stories discrediting Guo have flowed from Chinese state media outlets this week.
What follows now is unclear.
Guo appears to remain safe in the U.S. to send more accusations of corruption at Chinese officials, unlike Xiao Jianhua, a billionaire abducted by Chinese state security from Hong Kong across the Chinese border earlier this year. 

Xiao was known for helping China's powerful move their assets overseas, according to Willy Lam, a professor at Chinese University of Hong Kong.
The latest drama is important in part because it involves high level officials. 

But it is also unfolding a few months before a once-every-five-years leadership change in the ruling Politburo Standing Committee, and it could change the calculus of filling five of the seven opening seats.

China Property Boom Spurs Fear of Bubble’s Burst

"The fact that the government said it’s a rumor means it’s going to be true"

By NEIL GOUGH and CAROLYN ZHANG

Older homes on Lufeng Road, including Zheng Ruizhen’s house. New apartment towers loom in the background. 

SHANGHAI — Zheng Ruizhen counted herself among the last holdouts on Lufeng Road.
Even as high-rises sprang up in recent years to surround her dilapidated home, Ms. Zheng, a 50-year-old schoolteacher, and her husband, Sun Guojian, held firm. 

He grew up there. 

Her school was a 20-minute bicycle ride away. 

They raised their son there, though he eventually grew so tall that his head grazed the ceiling of his cramped room. 

When city officials pushed them to sell, they said no.
Then came China’s latest property bubble — a frothy surge in prices that could have global repercussions if it pops.
In August, an unremarkable piece of land around the corner from Ms. Zheng sold for nearly $2,000 a square foot, a national record and nearly three times the average land price in Manhattan. 

Local officials grew more insistent and threatened to tear down their bathroom.
Finally, they relented, and Ms. Zheng’s husband signed away the home for a price to be determined later. 

Then, on Oct. 9, Mr. Sun died of a heart attack, something Ms. Zheng said was perhaps influenced by stress over the pending demolition of their home.
Zheng Ruizhen in her home. Local officials threatened to tear down the bathroom before her husband finally gave in and signed away the home. 

Now, as she grieves, she is waiting to hear how much the Shanghai government will offer in compensation — but however much that is, she knows it will not be enough for her to be able to afford to live anywhere close to Lufeng Road.

Said Ms. Zheng: “I never expected housing prices in Shanghai would get this high.”
China is in the midst of a dizzying housing bubble. 

Shanghai’s average housing price is up nearly one-third from a year ago, with prices in major cities like Beijing and Guangzhou not far behind. 

Chinese consumers are rushing to buy homes before the government steps in with restrictions.
When rumors swept through Shanghai that the government would require homeowners to pay more in taxes and down payments to buy additional properties, many couples filed for divorce so that one partner could still be treated as an independent buyer.
China has experienced housing booms and busts before. 

And fervor for real estate among the wealthiest Chinese has already spread far beyond the country’s borders, from Long Island mansions to disused ranches in Texas— many to get their money out of the country.
But economists warn that the current boom on the Chinese mainland could be extra difficult to resolve: It comes with a growing amount of American-style debt.

Zheng Ruizhen watches TV in her house. Her husband, who died this week, grew up in the home.

Long-term household loans — mostly mortgages — have doubled as a share of total official bank lending this year. 

They accounted for about 40 percent of all new loans in August, contrasted with just 20 percent at the start of the year. 

The value of new home loans as a percentage of all housing sales has surged to a record high.
The loans — largely a byproduct of a flood of Chinese lending to keep the economy growing — are helping the affluent, the middle class and low earners who have dreamed of owning a home, while investors and speculators are piling in, too. 

Underground lenders — those who operate outside the formal banking system using a variety of new platforms — are also helping to feed the boom.
Last month, economists at the Bank of China warned in a report that worsening asset price bubbles were adding to a frothy market that could result in trouble. 

The day before, Wang Jianlin, a politically connected property and entertainment magnate who is one of the country’s richest people, told CNN that China property was “the biggest bubble in history.”
That could be bad news for the global economy. 

Many economists estimate that housing and related areas — like construction, cement manufacturing or furniture making — account for roughly one-fifth of China’s economic activity. 

But if the bubble pops, that support could disappear quickly.
Chinese officials, apparently mindful of the 2008 American housing bust, appear to be aware of the risks of a debt-fueled property bubble. 

But some economists worry they will be too slow to rein it in.

Sun Guojian, Ms. Zheng’s husband, rode off to work as a courier earlier this month. He died this week of a heart attack. 

“The risk is that the government is late in cooling the market, the rally spreads to more areas, pushing up household leverage and construction activity, pushing the bubble bigger, which is then followed by a bigger downward correction,” said Tao Wang, the head of China economics at UBS in Hong Kong.
Local regulators are already trying to cool things down. 

In the last few weeks, local authorities have accelerated efforts to tighten housing markets in up to 20 Chinese cities, according to economists at China International Capital Corporation, an investment bank.
But in many cases these steps have only added to the rush, as home buyers move in while they can.
By her account, Zhang Xia and her husband have enjoyed a happy marriage. 

Then the rumor swept the city that Shanghai authorities would make it harder for couples with one home to buy more.
On a recent Monday, Ms. Zhang, a 40-year-old resident of Shanghai’s Huangpu area, and her husband sat waiting at a local marriage registry office to file for divorce. 

Shanghai officials continue to deny that they will limit house buying by couples, but Ms. Zhang is among many who do not believe them.
“We know the government said this is a rumor, but they also said that a few times before, when the rumor actually came true,” Ms. Zhang said. 

“People even said the fact that the government said it’s a rumor means it’s going to be true.”

This empty lot about 300 feet from Zheng Ruizhen’s home recently sold for a record price.

Shanghai, China’s financial capital, is at the heart of the property boom. 

Demand there is so intense that developers now commonly require sizable deposits of cash just to join a lottery to buy a new apartment. 

Only holders of winning numbers will be offered the chance to buy a unit. 

One flashy new development in central Shanghai charges a refundable 200,000 renminbi, or $30,000, to enter its lottery.
“In Shanghai now,” said Wang Jie, a sales manager there, “it’s not like you can buy an apartment just because you have money.”
Back on Lufeng Road, the recently widowed Ms. Zheng and her neighbors try to go about their lives despite the boom going on around them. 

Men and women play mah-jongg near a half-demolished house, one of a number of dwellings along the road in various states of disassembly, like a row of rotting teeth. 

Stray dogs sunbathe and alley cats hunt around piles of red bricks and wooden beams scattered on the street.
In recent months, local officials hung red propaganda banners on people’s housing extolling the benefits of selling out. 

“No more hesitation means no more disappointment,” reads one. 

Says another: “Requisition and compensation are lawful. Smart alecks will regret it later.”

“Look at those banners,” Ms. Zheng said, shaking her head. 

“It’s almost like the Cultural Revolution once again.”
Earlier, local officials told Ms. Zheng that the land where her home stands would be used to build supporting facilities for the next-door complex of high-rises built by China Vanke, the country’s largest property developer.
“They said that when people who live in the high-rises in Vanke look down, the view from their windows is our ugly roofs,” she said. 

“So they have to get rid of us.”

China Takes Flak From Foreign Finance Officials at IMF, World Bank Meetings

Surging credit growth, overcapacity in its steel industry and its bloated housing market draw widespread complaints.
By WILLIAM MAULDIN

People’s Bank of China Deputy Governor Yi Gang, left, and Bank of England Gov. Mark Carney attended a panel discussion at the International Monetary Fund and World Bank Group semi-annual Meetings in Washington on Thursday. 

WASHINGTON—Finance officials trying to avert the next global economic crisis found time at a summit here to worry about something besides Brexit and European banks: China’s mounting debts and its flagging economic overhauls.
The country’s surging credit growth, overcapacity in its steel and metals industries and its bloated housing market drew widespread complaints from finance officials and central bankers attending semiannual meetings of the International Monetary Fund and World Bank.
Officials congratulated China for its efforts to get the yuan included in the IMF’s international basket of currencies, known as special drawing rights, starting Oct. 1. 

And despite a couple of scares in the past year or so, the country’s markets and economic growth have appeared to stabilize in recent months.
But in a sign of how important the world’s second-biggest economy is to global growth, China is increasingly being called out.
U.S. Treasury Secretary Jacob Lew warned Beijing in unusually candid language about China’s overproduction and overbuilding, which he suggested could become the biggest U.S. complaint about the country, as their earlier disputes over the country’s exchange rate become less divisive.
“I’m talking about steel, I’m talking about aluminum, I’m talking about real estate—when you don’t have market forces driving investment, when you don’t have bad investments allowed to fail, you end up with resources allocated in a way that ultimately chokes the future of economic growth,” Mr. Lew said at the Peterson Institute for International Economics on Thursday.
The IMF zeroed in on a measure called current credit overhang, a widely followed international indicator of potential crises. 

The deviation of China’s credit growth from its long-term trend has surged from zero during the financial crisis to up to 27%. 

Last year, banks’ balance sheets grew to 286% of gross domestic product.
“More is needed, especially to curb excess credit growth, reduce the opacity of credit products, and ensure sound interbank funding structures,” said Peter Dattels, deputy director of the fund’s monetary and capital-markets department.
China’s policy makers are caught in a deepening trap, economists say. 

Dealing with the debt problem would require the country to start deleveraging. 

But slower credit growth is bound to hamper the overall economy. 

That could backfire by making it harder for companies to repay existing debt.
Clamping down on credit would also raise the prospect of political unrest in a country that has grown accustomed to very rapid growth. 

Faced with such unappetizing prospects, the country’s leaders have largely eschewed credit restraint in the hope that they will be able to deal with its economic problems over time.
Part of the problem is the complicated and poorly disclosed structure of the country’s swollen banking system, economists say.
“The increasing complexity, opaqueness of the shadow banking, both on the asset side, but even more on the funding side where a lot of the funding is short term, is not stable,” Markus Rodlauer, the IMF’s Asia-Pacific deputy director, told reporters on Thursday. 

“It’s still of a size that is manageable, but the trajectory is dangerous, and needs to be contained.”
China’s appetite for steel and aluminum, which shrank abruptly in the past year or so, is of vital interest to commodity-exporting economies such as Russia and Brazil. 

For now, exporters appear to be confident that demand won’t drop off again in the short term.
“China’s growth is stabilized at a lower level,” Brazilian Finance Minister Henrique Meirelles said in an interview. 

“I don’t see a further collapse coming.”
Still, much will depend on China’s economic transition.
“They are trying to alter their priority from manufacturing to services, from export-oriented to domestic consumption,” said Indian Finance Minister Arun Jaitley in an interview. 

“In the transformational stage, there will be ripples.”