The last place in China you would expect to find an oversupply of property is between the beautiful lake city of Hangzhou and the country’s commercial heart of Shanghai, a 170km stretch that high-speed trains cover in just over an hour. Today, in addition to its reputation as a tourist draw, Hangzhou is known as the home of Jack Ma, founder of Alibaba, the internet group likely to go public soon in the biggest tech listing ever.
Property and Alibaba are not as unrelated as one might think.
Concern over falling prices in the property market has so far focused on housing. This is partly because of the social and political tightrope that the residential market represents for Beijing. If prices rise too swiftly, the have-nots may riot in the street. If prices fall too steeply, the haves will protest over lost wealth.
Meanwhile, industries that battened on demand for building materials including cement, glass and steel are reeling at falling demand for their output, while the government is trying to force banks to record more problem loans, both direct and indirect, given the widespread use of property as collateral for borrowed money.
Despite the attention given to housing, commercial property may register an even more dramatic fall in prices, particularly since it hasn’t been fully factored in to the economic equation. Mr Ma is one part of the explanation.
Alibaba is the biggest ecommerce company in China. Moreover, it is only now that the implications of ecommerce across a variety of sectors are beginning to become apparent. The country has 620m mobile internet users, according to data from ANZ bank, or almost half of its citizens. In the first four months of the year, ecommerce transactions were up more than 50 per cent.
Investors, including senior executives at Blackstone’s property arm and at Colony Capital, are pondering the ramifications of the power of ecommerce on the mainland. They have concluded that demand for the shopping malls on drawing boards today is likely to be smaller than their original calculations. Blackstone executives say they are already seeing a divergence. Shopping malls that offer primarily retail outlets are seeing their business start to fall off as customers shop more online. But malls that offer experiences and services, whether food or entertainment, are flourishing. Blackstone is retooling its retail investments accordingly.
Still, retail is just one part of a much larger metamorphosis. The internet is also likely to transform financial services. Banks will no longer need thousands of branches, for instance. Education, too, will have less demand for space. While first-rate universities will always attract the smart and ambitious to campuses, the rest will be forced to gravitate more online.
To be sure, there are sectors that will be the beneficiaries of these changing patterns. Companies such as JD.com, an ecommerce venture that went public in the US a few weeks ago, will evolve in different ways than their US role models, precisely because they have less legacy infrastructure. JD, for example, is an etailer like Amazon – but it is also a delivery service like UPS or DHL so it has greater need for logistics centres and warehouses. That is why Blackstone and Canadian Pension Plan Investment Board love investing in warehouses (at least until drones make them less relevant).
Of course, demand does not always evolve as expected. Twenty years ago, when the big upscale Japanese department stores opened in Shanghai, sceptics scoffed that anyone rich enough to patronise them would have the means to go to Hong Kong where prices were much lower. The sceptics were partly right. But wealthy Shanghainese were only a small part of the clientele. The bulk of business came from people visiting the city from local areas who resold the goods (at a mark-up) to neighbours for whom Shanghai remained a distant dream. The internet makes such distinctions between the city and the countryside less meaningful.
Today, the extent to which property prices will be allowed to fall is partly a political question. The government will probably impose a floor, limiting how far the market will establish clearing prices for distressed assets. China needs affordable homes. That means that the victims of the fall in residential prices will be overstretched developers (consolidation is already starting to happen), banks that can afford to write off the loans (because the state stands behind them) and careless investors who bought wealth management products in the shadow banking market.
The government is not so concerned about commercial space. Those who built second-rate shopping malls in third-rate cities have less reason to expect the state to cushion them from a fall.
的确，有些领域将从这种模式转变中受益。比如说，京东(JD.com)之类公司今后的发展道路将有别于它们所模仿学习的美国企业，因为它们的传统基础设施较少。比如几周前在美国上市的京东虽是一家与亚马逊(Amazon)相像的电子零售商，但也提供敦豪(DHL)或UPS式的快递服务，所以它对物流中心和仓库的需求较大。这就是黑石和加拿大养老金计划投资局(Canadian Pension Plan Investment Board)喜欢投资仓库的原因所在——至少在无人飞机快递普及以前。