Mar. 16 – China’s economy reported strong recovery in the second half of 2009, following unprecedented levels of coordinated stimulus measures by the government. Financial markets have largely mended while liquidity has started to flow. Domestic consumption was a key driver, backed by relatively healthy household balance sheets and generous fiscal boosts.

China’s economic momentum is building thanks to a cyclical turnaround in exports and investment, with the added advantage of growing domestic consumption. The latter has been aided by structural advantages of lower debt (at both the national level and household levels) and favorable demographics.

With capital values and rentals of property rising, foreign investors are likely to become more active in 2010. The increased foreign demand, coupled with the growing purchasing power of domestic investors, should continue to support price appreciation going forward.

The underlying economic growth will continue to support the recovery of the property market. However, due to the uneven speed of recovery, the urgency of entry varies across markets. At the top of the list are the retail sectors in Shanghai and Hong Kong, whore are the key beneficiaries of China’s robust economic growth. Hong Kong’s prime office market is on the verge of a strong upswing.

Major Themes
- Economic rebound to turn more broad-based.
- Policy re-calibration to take effect as priorities shift from growth to rebalancing economic structure. Private consumption is expected to make bigger contribution to GDP growth in the coming years.
- Broadening investor base to be established as domestic institutional investors become more significant players, driving aggressive cap rates and transaction volume.

Catalysts
- A substantial rise in government spending on healthcare, education, and social services, and easier access to consumer credit, will reduce the level of precautionary savings.
- The entry of domestic insurance firms and the impending establishment of REIT markets will provide positive impetus for investment properties.
- Completion of large-scale infrastructural projects and strategic development initiatives, such as financial sector reforms and high profile events (eg. EXPO 2010, Asian Games), will provide catalysts spanning short to long term horizons.

Opportunities
- Acquisition and re-positioning of underperforming retail malls that are being floated by easy monetary conditions.
- Opportunities arising from selective residential sector tightening measures (eg. tightened control on backdoor listing of property firms, regulations against land hoarding, restrictions on land auction participation etc.).
- Emerging districts benefiting from infrastructural reach as well as city development blue-prints.

Challenges
- Anticipating and navigating policy changes. Regulation of foreign capital into property is expected to get stricter.
- Rising competition from domestic investors requires foreign investors to offer more than just capital and bring more value to deals.