Recent inputs regarding investor interest in Shanghai property shows it’s again running very high.Â There are some key structural reasons this is probably a good time to be considering taking some positions here:
- The Chinese are now making it easier to buy property.Â A recent offering calls for investors to come up with a 30% downpayment to receive a 4% loan for the remaining 70%.Â The 3% deed tax and 0.05% stamp duty is now very low.Â The capital gain tax has been reduced (for resales within 2 years) to 5% of the gain versus what had been 5% of the entire amount.
- Recent policy changes to allow the local currency to appreciate gradually adds an additional kicker to returns to external investors that makes this even more attractive.Â Although exchange rates are unpredictable, most feel that the RMB has been kept down structurally and will tend to trend up over time versus other major currencies.
Caution on China is always a good idea and we know that there is still inventory to be worked off in a number of major cities there.Â However the global investor appettite for this asset class looks like it will be aided and abetted by changes in deal terms and exchange rates.
Many investors have gone to China or Hong Kong to cash in this trend over the last decade or so.Â Those of us wanting to exploit this trend in a less wholehearted way might look to the new Claymore China Real Estate ETF (TAO) for a simple way to have exposure.Â We can’t speak to the quality of this ETF but in a market offering few such choices this one is at least available.
[Disclosure: At the time of this writing we hold a few shares of TAO in our own and managed accounts.]