China's real estate market

Bob Zenouzi, CIO of the Real Estate Securities and Income Solutions (RESIS) team, outlines some of the obstacles facing real estate investors in China.

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well we think about China the those headwinds that were experiencing today we're really Tailwind over the past 15 years and that was in economy lead through investment and so today China it has about 50% of their GDP is Ben investment-led and part of that investment-led is the infrastructure in real estate specifically real estate residential real estate and so today now China has an oversupply of residential real estate and with an oversupply and a slowing economy that's creating some problems not only do you have an oversupply but the values of risen dramatically over the past 15 years and so in Tier 1 cities such as Shanghai and Beijing what you have today is median house prices divided by median income of about 15 to 16 times in the put that into perspective the show expensive that is at the very peak of our real estate cycle here in the United States in 2006 we are only at six times so their valuations are two to three times higher than ours and so that's creating some problems and so today in these Tier 1 cities you have oversupply very expensive real estate we're young people moving into the cities for jobs can afford the real estate so the Natural Market reaction will be the prices need to come down and that's what we're experiencing today then lastly was also going to be a headwind for China his Capital flight how many wealthy Chinese were connected to the government are now seeing this corruption Crackdown really a threat to their wealth that have accumulated over the past 15 years so that wealth is now exiting the country coming the United States and many Gateway cities in the world like London Paris and Sydney over the past four years we've been overweight the United States relative to the index and underweight Europe Japan and Emerging Markets the three reasons we've been overweight the US was low supply of real estate very favorable cost of credit and moderate growth and we continue to see that environment here in the US and hence will maintain that overweight position

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