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I’m in China right now. Every time I return, I am amazed at how drastically the skyline has changed. The pace of construction here is dazzling. In fact, I’ve seen estimates that as many as 75% of the world’s construction cranes are in China.
What were empty lots now contain office towers and condominium complexes so tall that you can’t see the top of the buildings through the smog. The quaint hutongs, or traditional residential lanes and small streets that originated during the Yuan Dynasty (1271-1368), have been razed and replaced with shopping malls.
The reason for the juggernaut growth is simple:
China Is Experiencing the Largest
Human Migration in the History of Mankind
Reminiscent of other industrial revolutions around the world, a massive tidal wave of working class Chinese from the rural interior heartland of China have been moving to the eastern coastal cities.
It started in the early 1980s when Deng Xiaoping’s economic reforms, which embraced free markets, put China on the path to capitalistic prosperity. Since then, waves of migrant workers have been flowing to factories in Special Economic Zones (SEZs) and the large urban coastal cities.
While accurate numbers aren’t available, the estimates I’ve seen show somewhere between 150 million to 200 million fortune-seeking migrants have moved into China’s largest urban cities. Consider the following two examples …
EXAMPLE #1: Shenzhen, a vibrant city across the border from Hong Kong, has grown from a small fishing town to a modern metropolis of 10 million residents in just two decades.
EXAMPLE #2: The leaders of Chongging, a 31-million-resident province in southwest China, are determined to become a modern city. They expect to increase the percentage of urban dwellers from 45% today to 70% by 2020. To achieve that goal, country-dwellers must move into urban areas at a rate of more than 500,000 a year.
As large as those numbers are, the migration wave is going to get even bigger. I know that because the Chinese government wants it to happen. Hou Yan, a senior official with the National Development and Reform Commission, said “Our policy is not to delay the migration trend from rural areas.”
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| As the mass migration from the country’s interior to the eastern coastal cities continues, China’s urban population will explode to 910 million by 2030. |
According to the United Nations’ State of World Population Report 2007, China’s urban population will grow from 560 million in 2005 to 910 million by 2030. That will shift the percentage of urban dwellers from 42% to 64%, a stunning increase from the 20% that lived in cities in 1980.
All of these migrants are going to need a lot of things: Jobs, food, transportation, clothes … and roofs over their heads.
The Chinese are no different than we are when it comes to home ownership, they just don’t call it the “American dream.” Make no mistake: Home ownership is the #1 financial priority of every Chinese adult!
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This magnitude of big city migration is never more apparent than during Chunyun (Spring Festival). That’s when almost all the rural migrants return to their hometowns each year. During Chunyun, around the time of the Chinese New Year, hundreds of millions of Chinese return home to visit their families. Trains, planes, and roads are jammed with travelers, hitting the 2-billion mark in 2006. That’s more travelers than the United Kingdom has for an entire year! Needless to say, I’ve learned to steer very clear of China around February. |
And thanks to an economy that has grown at more than 10% for five years in a row, incomes are rapidly rising and creating an entire generation of new middle class families looking for homes.
When It Comes to Real Estate,
China Is Hot, America Is Not
In the 19th Century, a steady wave of Americans traveled across the Great Plains and Rockies in covered wagons. These pioneers fought Indians, famine, and drought just for the chance to own a piece of dirt.
Over 150 years later, the subprime debacle and credit crisis have pummeled the U.S. housing market. Not a day goes by where the news doesn’t include a story about our country’s deepening real estate problems.
So I don’t blame you if you’re hesitant to add a real estate stock to your portfolio. But let me tell you, the housing situation in China couldn’t be more different than what we have in the U.S.
There aren’t half-finished condo projects collecting seagull poop, there aren’t tens of thousands of flippers defaulting on their mortgages, nor has the mortgage market suffered a liquidity crisis.
Furthermore, Chinese laws require that homebuyers put up a 20% to 30% down payment. And get this — a whopping 83% of all homes sold in China were purchased with ALL CASH! That may sound impossible, but not in a country that has a 20%-plus savings rate.
The Chinese real estate market is smoking! According to Chinese research firm CEIC Data, real estate prices rose at a 38% annualized pace from 2001 through 2005. And the strength is continuing all the way through today.
Bottom line: If you can figure out what companies are helping Chinese citizens realize their dreams of home ownership, you will hit the jackpot.
That’s why I’m in China right now, meeting with several of the country’s most successful and profitable real estate and real estate-related companies.
My goal is finding out what publicly-traded company is the best way to cash in on the dazzling Chinese real estate boom.
By the end of my trip, I expect to know exactly who that is. So stay tuned!
Best wishes,
Tony
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