Chinese property “past the crisis point”, says Schroders’ Rehlaender

The Chinese property market is no longer at risk of falling into crisis, according to Schroders’ Jim Rehlaender, despite fears that the country’s housing sector is in a bubble.

Rehlaender, who co-manages the £596.9m Schroders Global Property Securities with Al Otero, concedes that the Chinese housing market is viewed with “anxiety” but points out that unique structural factors offer it strong support.

This month’s Bank of America Merrill Lynch European Fund Manager Survey shows 14% of asset allocators cite the Chinese real estate market as the biggest tail risk at the moment. This is an increase from 10% in February’s survey.

However, Rehlaender says: “People also forget when looking at China that it is unlike any market in the world in that the government never relinquishes ownership of the land.

“In the case of a developer who can’t perform, the government takes, or refunds the land premium, and the land could be retained or ‘sold’ later to another developer.”

The manager, who holds 3.5% of his portfolio in emerging markets such as China, also points out that higher-quality property companies, such as China Overseas Land and Investment, have seen “solid” home sales and improving margins.

Rehlaender adds that investors should be prepared to see some bankruptcies by companies among the 85,000 residential developers that cannot complete their projects.

But he concludes: “Although we understand the concerns that have been raised about the Chinese residential market, we believe that we are past the crisis point in the Chinese residential market.”