April 8 (Bloomberg)
-- China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.
China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.
Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.
Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble, Chanos said.

China’s Reserves:
China’s foreign currency reserves will be “one asset” that can be used to fund a cleanup of the banking system, he said. The country has accumulated a record $2.4 trillion of reserves, and $889 billion of U.S. government debt, partly a consequence of its exchange-rate policy.
Chanos was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp. The investor said he is short-selling Chinese developers as well as companies supplying building-related materials to the country, without identifying any stocks.

In a short sale, investors bet on declines in securities by borrowing stock to sell on the expectation it can be purchased at a lower price before handing it back.
Last Updated: April 8, 2010 00:12 EDT

Treasury Holdings are big into Chinese property.

In other news a man who has substantial short positions in the shares of companies exposed to the Chinese property market has told people to sell the shares of companies exposed to the Chinese property market.

But the fact of the matter is the game has to keep going. They’re on
this treadmill to hell, as I call it, because so much of their GDP growth
is construction -- 50 percent to 60 percent of this country’s GDP is
construction. We’ve not seen that in terms of a major country I think for
a long time if not at all.
And so for them to get off of stopping construction, you’ll see GDP
growth go negative very quickly. That’s not going to happen, because in
China it’s all about making the number. People are rewarded at almost
every level of government of making their economic growth numbers. The
easiest way to do that is put up another building.
So they’re really hooked on this sort of heroine of real estate
development to keep the numbers going. It’s not infrastructure. It’s not
airports, high-speed rail. There’s some of that. And it’s not experts.
Exports have been stagnant now for a while. And it’s not the consumer in
China, either, despite what people believe. It is construction, real
estate construction.

CHARLIE ROSE: says: Tom Friedman has waded in on this.
He said "Never short a country with $2 trillion in
foreign currency reserves."

JAMES CHANOS: Yes. The last two economies that had similar foreign
currency reserves relative to the size of their economy was Japan in 1989
and the U.S. in 1929. I’ll let that be the end of that discussion.

JAMES CHANOS: They can’t afford to. As I said, they’re on a
treadmill to hell. They can’t afford to get off this heroine of property
development. It is the only thing keeping the economic growth numbers
going.

http://www.highbeam.com/doc/1G1-165718914.html

DYNAMIC duo Johnny Ronan and Richard Barrett continue to break new ground, backing a daring China Real Estate Opportunities drive to spend over EU600m on properties in Shanghai, Beijing and other centres.

The company is raising EU385m through a share issue and seeking admission to Londons' Alternative Investment Market. Interestingly, the initial property portfolio does not include the Xidan Centrepoint shopping mall, hotel and office complex in Beijing. CREO agreed to buy it last February, but the deal has since become embroiled …

A Property Tax is Coming ... But Not as We Know It
Published: 2010-05-01
By Xi Si

According to information obtained by The Economic Observer, an annual tax on the property assets of Chinese property owners will be piloted in four of China's largest cities this year, but the tax will be different from the property tax that many first anticipated.

Instead, it's been revealed that the central government plans to trial a real estate tax (房产税), in the cities of Beijing, Shanghai, Chongqing and Shenzhen within the year.

After the tax has been piloted in these four cities, it will be applied on a national scale.

The real estate tax was previously only imposed on properties being operated on a commercial basis and not on owner-occupied residences. Now it seems likely that residential properties?that meet certain, as yet unspecified, conditions?will also be subject to the tax.
.....(cont'd)

“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

The government has banned loans for third homes and raised mortgage rates and downpayment requirements for second-home purchases. Prices rose 11.7pc across 70 cities in March from a year earlier, the most since data began in 2005.

Property bubble threatens China rally
Published: 3:07PM BST 07 May 2010
By Emma Wall

China has been kind to investors, but several fund managers fear a correction.

Over the past decade, China has been the go-to country for investors looking for growth. You would have nearly tripled your money in the past five years alone, and pension pots drip feeding since the Nineties would have seen their savings outstrip any other area of their portfolio.

China hasn't been shy in showing off its stupendous rise, from the Beijing Olympics to the Shanghai Expo, now wooing crowds.

This astronomical performance has attracted thousands of investors keen to get a piece of the action, aided by the launch of several new funds over the past year – including the new investment trust managed by Fidelity's Anthony Bolton, which went live last month.

The stock market is still some way off its peak in 2007, but experts have expressed concern that China is sitting on a property bubble that is set to burst, in a similar fashion to the technology crash of 2000.

Guy de Blonay, co-manager of Jupiter's Financial Opportunities fund, cited the recent introduction of policy to control the property market as an indicator that the Government feels the property sector is slipping from its grasp.

Mr de Blonay said the culture in China was to invest in property, rather than put savings in the bank or stock market. People tend to buy multiple properties off-plan, taking two or three mortgages out at a time. The total area under construction in China, for residential property and its infrastructure, is three times the size of Greater London. The worry is that the real demand will not meet the speculative building, said Mr de Blonay.

"The increasing risk of a bubble in Chinese property is the key factor behind the current policy tightening cycle in China,'' he said.

.....(cont'd)