A bubble waiting to burst: China’s real-estate speculation leads to public stock-offering frenzy
Posted by waterweek on 17 October 2007
Despite China’s efforts to curb real estate speculation, housing prices continued to rise, encouraging even more construction and a frenzy of public stock offerings by big real estate companies, wrote David Barboza in The Sydney Morning Herald (10/10/2007, p.B27).
Huge paper-fortunes: SOHO China’s initial public offering raised nearly $US1.7 billion, or as much as Google raised in its 2004 public stock offering in the US. SOHO’s founders, Pan Shiyi and Zhang Xin, a husband and wife team known for their stylish developments in Beijing, were worth close to $US4 billion on paper, based on the stock’s closing price. This year, another Chinese real estate developer, Country Garden, raised $US1.9 billion in a Hong Kong stock offering. Country Garden’s largest shareholder was the founder’s 25-year-old daughter, Yang Huiyanto, to whom the founder gave all of his shares in 2005. She was thought to be the richest person in China, with shares valued at about $US16 billion.
The trouble with bubbles: “In real estate you’re getting overinflated profits from borrowing money to get cheap land and then selling at inflated prices. And then you’ve got a stockmarket that is valuing a dollar of earnings at about 40 or 50 times. So you’ve got a bubble on ton of a bubble.” said Michael Pettis, an associate professor of finance at Peking University and a former investment banker.
The Sydney Morning Herald, 10/10/2007, p. B27