(Bloomberg) — The troubles facing highly indebted property developers in China have dominated conversations about the Asian nation’s economy and markets this year. Yet according to Rayliant Global Advisors’ Jason Hsu, there’s an important distinction between this and past housing crises elsewhere which is guiding policymakers’ response to it: The developers are the ones who are over-leveraged, not the households.
Hsu, the chief investment officer at Rayliant Global Advisors, joined the What Goes Up podcast to discuss the state of the property market as well as the consumer in China. Here are some highlights of the conversation, which have been condensed and edited for clarity. Click here to listen to the full podcast, or subscribe on Apple Podcasts or wherever you listen.
Listen to What Goes Up on Apple Podcasts
Listen to What Goes Up on Spotify
Q: Lay out the problems with the property real estate sector in China.
A: When you think about apartments from the US perspective, you buy it to either live in it or you rent it out to collect the yield. In China, there are lots and lots of apartments that are owned but not lived in and not rented, so it’s very unproductive. Chinese don’t think of apartments as producing an income for you. They think of it more like a store of value, so they’re perfectly happy holding an apartment, leaving it empty, believing it holds value. So from that perspective, there’s enormous demand when it comes to Chinese appetite to buy property.
Are the developers in trouble because maybe the Chinese are cooling off on their preference to hold wealth in real estate? I’d say the Chinese developers are mostly in trouble, not because somehow Chinese investors have had a shift in taste. What’s more an issue is a lot of them have simply geared up way too high. Country Garden, your China Evergrande that went under last year — they simply borrowed way too much debt, and they were hoarding land and hoarding apartments, not selling them fast enough to pay down the debt. They just irritated Beijing a little too much. And I would say these are not a real estate-related triggering of bankruptcy, but almost a policy engineered bankruptcy targeted at real estate developers that have simply become too levered up.
Q: What’s been the policy response?
A: The government doesn’t think right now there’s a meaningful problem in the real estate sector other than that consumers seem to be disappointed about how real estate is performing, and therefore that lack of confidence may be causing them to not consume. So the government realizes the most reliable channel for wealth effect — basically real estate appreciating which has caused households to increase consumption — that channel has temporarily gone away. But the bigger problem they’re trying to contain originally was that they didn’t want real estate prices to get more expensive. It wasn’t becoming a financial problem; it was becoming a social problem.
Chinese households are not levered when it comes to real estate. Developers are very levered, but households — which is far more important — they’re not levered.
So I think the government is OK with where real estate is today. Prices aren’t going up. The bankruptcies you’re seeing in the developer sector are very engineered. On the household side, there’s not a balance-sheet crisis because they’re not buying real estate on leverage. So they really don’t think there’s a meaningful problem there. Now, of course, they wish Chinese households would have found another store of value or another asset that’s more productive that the government could help manage and create a wealth effect. And they’re hoping the stock market can be that.
Read More: Quant Who Told His Mom to Sell Nvidia Hasn’t Heard the End of It
Q: You launched a China ETF at the end of 2020, and it’s down since the launch. Talk to us about the strategy and why the early couple of years have been rough.
A: The beta has been a major, major headwind. We launched a product at a time when we believed that as China gets incorporated more into the MSCI basket, there’s going to be a natural flow going into the asset class, and people are going to start to get more curious about, oh, can you directly invest in China rather than just buying Alibaba as an American ADR. So we launched an onshore product that focuses on A shares — and of course we ran headlong into essentially three years of turbulence all the way from the Covid lockdowns to the government experimenting with policies of how to manage e-commerce platform companies. There’s just a lot of uncertainty with regard to what that will look like.
Early signs have not really caused people to develop confidence. And certainly you got the China-US tensions that started with President Trump and continue with President Biden. So we ran into a lot of beta headwinds — unexpected, of course. But it is, I would say, par for the course when it comes to investing in emerging markets.
Q: Where do you see opportunities in emerging markets right now?
A: I would say short-term, the interesting and fun plays are really all the “friend-shoring” themes. Those could last all the way from a few months to perhaps a year or two. You have Mexico now being front and center for a lot of people thinking, hey, friend-shoring Mexico is an obvious candidate as an EM economy that’s big enough and obviously close enough to the US. India. Vietnam being where a lot of Chinese entrepreneurs and factories have moved production to. I would say there are a lot of opportunities around the friend-shoring concept — that’s in the short term.
Read more: What ‘Friend-Shoring’ Means for the Future of Trade
But in the long run, where I think the opportunities are, it’ll continue to be the export-oriented and high-value-add economies — your China, your India, and increasingly so your Vietnam, Indonesia as more foreign direct investments leave China to go to these smaller economies. They’re going to follow the Japan, South Korea, Taiwan, and, of course, the China model of exporting. And then through exporting, improving corporate profits, improving GDP growth. And I’m probably a bit more mixed about purely resource-based emerging-market economies because they seem to go through these boom-bust cycles that are just driven by commodity prices. Now, commodity prices could sustain the current high levels due to geopolitical tensions. But without a really strong value add, I’m a little less fond of pure resource-oriented emerging-market economies.
Listen to the rest of the podcast here.
–With assistance from Carolina Wilson and Stacey Wong.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
In the quest to find cities where renters can enjoy the best of all worlds, a recent study analyzed 24 metrics across three key categories—Housing & Economy, Quality of Life, and Community. The study ranked the 100 largest cities in Canada to determine which ones offer the most to their renters.
Here are the top 10 cities that emerged as the best for renters in 2024:
St. John’s, NL
St. John’s, Newfoundland and Labrador, stand out as the top city for renters in Canada for 2024. Known for its vibrant cultural scene, stunning natural beauty, and welcoming community, St. John’s offers an exceptional quality of life. The city boasts affordable housing, a robust economy, and low unemployment rates, making it an attractive option for those seeking a balanced and enriching living experience. Its rich history, picturesque harbour, and dynamic arts scene further enhance its appeal, ensuring that renters can enjoy both comfort and excitement in this charming coastal city.
Sherbrooke, QC
Sherbrooke, Quebec, emerges as a leading city for renters in Canada for 2024, offering a blend of affordability and quality of life. Nestled in the heart of the Eastern Townships, Sherbrooke is known for its picturesque landscapes, vibrant cultural scene, and strong community spirit. The city provides affordable rental options, low living costs, and a thriving local economy, making it an ideal destination for those seeking both comfort and economic stability. With its rich history, numerous parks, and dynamic arts and education sectors, Sherbrooke presents an inviting environment for renters looking for a well-rounded lifestyle.
Québec City, QC
Québec City, the capital of Quebec, stands out as a premier destination for renters in Canada for 2024. Known for its rich history, stunning architecture, and vibrant cultural heritage, this city offers an exceptional quality of life. Renters benefit from affordable housing, excellent public services, and a robust economy. The city’s charming streets, historic sites, and diverse culinary scene provide a unique living experience. With top-notch education institutions, numerous parks, and a strong sense of community, Québec City is an ideal choice for those seeking a dynamic and fulfilling lifestyle.
Trois-Rivières, QC
Trois-Rivières, nestled between Montreal and Quebec City, emerges as a top choice for renters in Canada. This historic city, known for its picturesque riverside views and rich cultural scene, offers an appealing blend of affordability and quality of life. Renters in Trois-Rivières enjoy reasonable housing costs, a low unemployment rate, and a vibrant community atmosphere. The city’s well-preserved historic sites, bustling arts community, and excellent educational institutions make it an attractive destination for those seeking a balanced and enriching lifestyle.
Saguenay, QC
Saguenay, located in the stunning Saguenay–Lac-Saint-Jean region of Quebec, is a prime destination for renters seeking affordable living amidst breathtaking natural beauty. Known for its picturesque fjords and vibrant cultural scene, Saguenay offers residents a high quality of life with lower housing costs compared to major urban centers. The city boasts a strong sense of community, excellent recreational opportunities, and a growing economy. For those looking to combine affordability with a rich cultural and natural environment, Saguenay stands out as an ideal choice.
Granby, QC
Granby, nestled in the heart of Quebec’s Eastern Townships, offers renters a delightful blend of small-town charm and ample opportunities. Known for its beautiful parks, vibrant cultural scene, and family-friendly environment, Granby provides an exceptional quality of life. The city’s affordable housing market and strong sense of community make it an attractive option for those seeking a peaceful yet dynamic place to live. With its renowned zoo, bustling downtown, and numerous outdoor activities, Granby is a hidden gem that caters to a diverse range of lifestyles.
Fredericton, NB
Fredericton, the capital city of New Brunswick, offers renters a harmonious blend of historical charm and modern amenities. Known for its vibrant arts scene, beautiful riverfront, and welcoming community, Fredericton provides an excellent quality of life. The city boasts affordable housing options, scenic parks, and a strong educational presence with institutions like the University of New Brunswick. Its rich cultural heritage, coupled with a thriving local economy, makes Fredericton an attractive destination for those seeking a balanced and fulfilling lifestyle.
Saint John, NB
Saint John, New Brunswick’s largest city, is a coastal gem known for its stunning waterfront and rich heritage. Nestled on the Bay of Fundy, it offers renters an affordable cost of living with a unique blend of historic architecture and modern conveniences. The city’s vibrant uptown area is bustling with shops, restaurants, and cultural attractions, while its scenic parks and outdoor spaces provide ample opportunities for recreation. Saint John’s strong sense of community and economic growth make it an inviting place for those looking to enjoy both urban and natural beauty.
Saint-Hyacinthe, QC
Saint-Hyacinthe, located in the Montérégie region of Quebec, is a vibrant city known for its strong agricultural roots and innovative spirit. Often referred to as the “Agricultural Technopolis,” it is home to numerous research centers and educational institutions. Renters in Saint-Hyacinthe benefit from a high quality of life with access to excellent local amenities, including parks, cultural events, and a thriving local food scene. The city’s affordable housing and close-knit community atmosphere make it an attractive option for those seeking a balanced and enriching lifestyle.
Lévis, QC
Lévis, located on the southern shore of the St. Lawrence River across from Quebec City, offers a unique blend of historical charm and modern conveniences. Known for its picturesque views and well-preserved heritage sites, Lévis is a city where history meets contemporary living. Residents enjoy a high quality of life with excellent public services, green spaces, and cultural activities. The city’s affordable housing options and strong sense of community make it a desirable place for renters looking for both tranquility and easy access to urban amenities.
This category looked at factors such as average rent, housing costs, rental availability, and unemployment rates. Québec stood out with 10 cities ranking at the top, demonstrating strong economic stability and affordable housing options, which are critical for renters looking for cost-effective living conditions.
Québec again led the pack in this category, with five cities in the top 10. Ontario followed closely with three cities. British Columbia excelled in walkability, with four cities achieving the highest walk scores, while Caledon topped the list for its extensive green spaces. These factors contribute significantly to the overall quality of life, making these cities attractive for renters.
Victoria, BC, emerged as the leader in this category due to its rich array of restaurants, museums, and educational institutions, offering a vibrant community life. St. John’s, NL, and Vancouver, BC, also ranked highly. Québec City, QC, and Lévis, QC, scored the highest in life satisfaction, reflecting a strong sense of community and well-being. Additionally, Saskatoon, SK, and Oshawa, ON, were noted for having residents with lower stress levels.
For a comprehensive view of the rankings and detailed interactive visuals, you can visit the full study by Point2Homes.
While no city can provide a perfect living experience for every renter, the cities highlighted in this study come remarkably close by excelling in key areas such as housing affordability, quality of life, and community engagement. These findings offer valuable insights for renters seeking the best places to live in Canada in 2024.
