China, the World’s Largest Real Estate Market

High demand and continued price growth has seen China overtake the U.S. as the world’s biggest property investment market last year and will probably keep the lead in 2010 on economic growth and a lower reliance on debt, Cushman & Wakefield LLP said.

Real estate investment in China more than doubled to $156.2 billion last year, while the total for the U.S. slumped 64 percent to $38.3 billion, the New York-based broker said in a report today. Excluding residential investments, the U.S. came third after China and the U.K.

China’s economy expanded at an annual rate of 10.7 percent in the final quarter of last year, boosted by Premier Wen Jiabao’s $586 billion stimulus package. The U.S. property market is being hurt by high levels of unpaid debt and a reluctance among banks to lend as they clean up their balance sheets, Cushman & Wakefield said.

China is taking steps to rein in the real estate market as price increases accelerate. The government in January re-imposed a sales tax on homes sold within five years of their purchase and the People’s Bank of China raised the proportion of deposits banks must set aside as reserves to reduce lending. Property prices in December rose at the fastest pace in 18 months.

Eight of the world’s 20 largest property markets last year were located in the Asia Pacific region, with Hong Kong, Taiwan and New Zealand registering gains in investment, according to the report. Cushman & Wakefield is the world’s largest closely held commercial real estate adviser.

Japanese Real Estate
Japan will see a revival after investment fell 48 percent to $19 billion last year, it said. Some distressed properties are selling for less than their construction costs and average rental incomes tend to be higher than financing costs, making the market “compelling,” Han said.

U.S. property investment will rise 50 percent this year on falling prices and an increase in distress sales.

In Europe, most investors are focusing on the largest, most active markets such as the U.K., France and Germany. Investment in the continent will probably rise 44 percent this year to $152 billion, the firm predicts.

U.K. prices were among the quickest to bottom out after the global financial crisis began, with values falling 44 percent in the two years to July 31. The slide in prices and the pound’s weakness helped revive investment and lift property prices.

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