Finding Great Chinese Real Estate Investments!

In 12 days, I will be stepping off a Hainan Airlines flight at the new Beijing International Airport and setting out to investigate some investment ideas. I’m particularly excited about two real estate companies. More on them in a moment.

Typically, Asian companies are eager to share their exciting growth stories with American investors. So booking meetings with company executives, factory tours, R&D centers, and other behind-the-scenes expeditions is usually very, very easy.

However, this time I received a completely unexpected reception from the Investor Relations departments of the Beijing companies I wanted to visit.

Here are a couple (paraphrased) examples of what they said:

“Mr. Sagami, we are honored to have you visit our company, but are you aware the Olympics will be held during that week?”

“August? Do you mean September?”

“Our schedule is very open. Nobody is visiting us during the Olympics.”

I really shouldn’t have been surprised. You see, my competitors aren’t going to be doing much ‘business’ during the Olympics.

Call me old fashioned, but I don’t fly 12 hours across the Pacific Ocean to go sightseeing. I’m there to do business and find the next home run stock.

But instead of poring over the latest sales reports from Chinese retailers, my peers will be watching Lebron James, Michael Phelps, Tyson Gay, and Shawn Johnson compete for gold medals.

The plush lobby of the Beijing Peninsula Hotel will be packed with MBAs nibbling on sweet scones and drinking Darjeeling tea. Me? I will be uncovering which Chinese web portals are capturing the most Internet traffic.

Instead of sweating their buns off in a steamy hothouse of an exciting agricultural biotechnology company, my Manhattan peers will be taking air-conditioned limousine rides to the Badaling section of the Great Wall of China.

And while I will be talking to the agents at the country’s tallest high rise condominium to find out the latest ales trends, Wall Street’s analysts will be drinking bottles of Maotai in the glitzy Sanlitun Entertainment District.

Too bad for them because …

China’s Booming Real Estate Market
Is Just One of the Great Investment Opportunities
I’ll Be Investigating in Person!

As much as 70% of the world’s construction cranes are in China right now!

I think China’s real estate market is attractive for two main reasons:

First, the industry’s fundamentals are terrific.

Second, there are several Chinese real estate stocks and ETFs listed on U.S. exchanges.

For several years, Chinese real estate has been red hot because of the biggest building boom in mankind’s history. I’ve seen estimates say as many as 70% of all the construction cranes in the world are on Chinese soil.

Every time I go back, I see new buildings that weren’t there six months ago. The pace of construction is unbelievable.

Compared to the U.S. market, where home sales and prices have been falling, the Chinese residential market has remained strong. That’s largely because 80% of all home purchases in China were bought with 100% cash last year. In other words, China simply doesn’t have the same sub-prime woes and default problems that we do.

Paying all cash for a home may sound impossible to you and me, but we’re talking about a country that has a savings rate of 25% and many children living with their moms and dads until they’re ready to buy a home. So the forces that are pushing the U.S. economy down are not evident in China.

According to the National Development and Reform Commission, China’s top economic planning agency, house prices in 70 large and medium-sized Chinese cities rose 9.2% in the second quarter from a year earlier. That’s on the heels of a 10.2% annual increase in May and an 11% increase in the first quarter of 2008.

Property prices grew the fastest in Beijing (14.7%), Urumqi (20.2%), Haikou (18.1%), Ningbo (14.7%) and Hangzhou (13.3%).

Compare that with the U.S.! According to the Office of Federal Housing Enterprise Oversight, home values declined 0.3% in May, the 12th out of the last 13 months of declining home values, and a 4.8% loss over the same period last year, the largest year-over-year decline in the history of the data.

By the way, the OFHEO index does not include jumbo or subprime loans, so it grossly understates the drop in property values in parts of the country such as California, Florida, Nevada and Arizona.

Meanwhile, the Case-Shiller price index, which does includes sub-prime and jumbo loans and is therefore a much more accurate barometer of the real estate market, shows that home prices dropped 15.3% in the past year!

So if you want to keep some money in real estate, but are scared of the U.S. housing implosion, I suggest you cash in on the red-hot Chinese real estate market.

If you’re more of an exchange traded fund type of investor, you could take a look at the Claymore AlphaShares China Real Estate ETF (NYSE: TAO).

Of course, I think you can do much, much better with a more targeted approach.

For example, developer China Overseas Land & Investment just saw its June sales skyrocket by 205% from the same month last year.

That’s the type of growth I will be looking for while I am in Beijing. In fact, while I think it’s too late to buy China Overseas Land & Investment, there are two companies headquartered in Beijing that look even more promising.

I will use my trip to Beijing to uncover who is the best positioned to profit from what will likely be a multi-decade bull market. So stay tuned!

Best wishes,

Tony

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