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Chinese speculators chase profits online as home prices drop

BEIJING — With just 11,000 yuan (S$2,260), 50-year-old Deng Bangfu made his first property investment in China, flipping it in only two months for a healthy return while the nation’s home prices fell.

A couple looking at residential buildings from the Bund area of Shanghai. About 60 per cent of investors lending through peer-to-peer websites had annual income of less than 100,000 yuan (S$20,500), wangdaizhijia.com said. Photo: Bloomberg

A couple looking at residential buildings from the Bund area of Shanghai. About 60 per cent of investors lending through peer-to-peer websites had annual income of less than 100,000 yuan (S$20,500), wangdaizhijia.com said. Photo: Bloomberg

BEIJING — With just 11,000 yuan (S$2,260), 50-year-old Deng Bangfu made his first property investment in China, flipping it in only two months for a healthy return while the nation’s home prices fell.

Mr Deng and about 300 other investors bought a 14.9 million yuan townhouse in June in the southern Chinese city of Dongguan and sold it last month for 16 million yuan. The vehicle: A peer-to-peer lending and financing website called Tuandai, which is testing a crowdfunding product that meets developers’ desire to quicken sales by tapping demand for better returns.

“Now, I can tell people I once owned a townhouse, which I could never afford myself all my life,” said Mr Deng, an accountant at a technology company in Dongguan.

“We know that local governments have started loosening home purchase restrictions. As soon as banks ease mortgage curbs, home prices will quickly rebound.”

Chinese online investors, who since 2011 helped drive a 50-fold increase in financing through peer-to-peer websites such as Tuandai, are turning to property as falling home prices prompt the government to ease curbs aimed at stamping out speculation. Officials are seeking to revive local-government revenues at the risk of bringing home-flippers back to the market.

SPECULATORS RETURN

Speculators could return, ratings agency Fitch said last month.

Said Mr Andy Chang, Fitch’s Hong Kong-based property analyst: “If liquidity recovers, home prices start to go up and sentiment improves. Peer-to-peer lending will surely play a stronger role pushing the waves because it’s pure speculation or investment demand.”

JPMorgan Chase analyst Ryan Li wrote in a report last month that speculative buying accounts for more than 20 per cent of demand in first-tier cities, which include Beijing and Shanghai.

Investors accounted for 40 per cent of home buyers in 2007, three years before then-Premier Wen Jiabao imposed home purchase curbs and raised downpayments to prevent a housing bubble.

Home sales plunged 10.5 per cent in the first seven months this year from a year earlier amid tight credit, government data showed, reversing a 27 per cent jump last year. New home prices fell in 64 of the 70 cities tracked by the government in July from June, the most since January 2011.

To stem the downturn, 37 of the 46 Chinese cities that imposed limits on home ownership since 2010 to snuff out property flippers have relaxed or scrapped restrictions on the number of apartments one can buy as of Sept 3. The nation’s biggest lenders cut interest rates on first mortgages in Beijing and Shanghai.

VERY HIGH RISKS

The risks of online property speculation are very high because anybody with 1,000 or 2,000 yuan can take part and many of them do not understand investing, Standard & Poor’s Hong Kong-based analyst Fu Bei said.

He warned that prices will keep falling because of the rising supply of unsold apartments. The inventory of unsold new homes in 20 large cities jumped to an average of more than 23 months of sales in June, showed Shenzhen World Union data compiled by Bloomberg.

However, bricks and mortar have historically offered better returns in China. The average home price, excluding government-subsidised housing, jumped almost 180 per cent from 2000 through 2012, showed official data. The benchmark Shanghai Composite Index gained less than 10 per cent in the same period.

“There aren’t that many investment channels with satisfactory performance in China,” said Fitch’s Mr Chang. “If you look around, property remains relatively good among industries.”

That is what the Dongguan online investors are betting on. Tuandai attracted 288 of them, including Mr Deng, to take part in the purchase of the 7,060sqf townhouse on June 17. Two weeks later, 517 investors pooled 18 million yuan online in nine hours to snap up a second fangbaobao, or “home baby”, as the products are known in Chinese. This time it was a 7,590sqf townhouse in the same Citic Real Estate project in Dongguan.

Tuandai negotiated to pay 25 per cent below market for Mr Deng’s townhouse and got similar discounts for another 17 Citic homes. A buyer agreed to pay 16 million yuan for the first property and the transaction was completed Aug 23.

That handed Mr Deng and his fellow investors an annualised return of about 40 per cent, more than 13 times the benchmark one-year deposit rate, said the website.

PEER-TO-PEER BOOM

Peer-to-peer lending has taken off in China since 2011 as traditional methods of private lending among family and acquaintances, part of the country’s unregulated 36 trillion yuan shadow-banking system, move online.

The little-supervised platforms pool money from small investors to finance anything from wedding preparations, personal medical expenses to car purchases.

About 60 per cent of investors lending through peer-to-peer websites had annual income of less than 100,000 yuan, 85 per cent of them were male, and 80 per cent of them were aged between 20 and 40, said wangdaizhijia.com, which tracks more than 1,000 peer-to-peer loan websites.

Sites such as Tuandai are able to negotiate large discounts as developers in China’s crowded homebuilder market are eager to revive slumping sales. Tuandai had 2 billion yuan of transactions in the year to Aug 28, more than 11,000 investors and a lending rate averaging 16.45 per cent, said wangdaizhijia.com.

“Some developers are pushing out some of their products at low prices because homes are not selling well, and some crowdfunding websites are just seeing the business opportunity,” said Zheshang Securities analyst Dai Fang. “The key question is: What if they can’t sell it?”

It is something Mr Deng has thought about. “For the long run, home prices will rise,” said Mr Deng, who ploughed 55,000 yuan into a third townhouse, also by Citic, five times his first investment and almost double the one he made in the second Tuandai offering. “Even if we can’t sell it in the market, the property will still be there.” BLOOMBERG

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