Why the Fall of Syswin's IPO Underlines China's Realty Bubble

Thursday, Nov 25 2010 by
Why the Fall of Syswins IPO Underlines Chinas Realty Bubble

As the famous Bob Marley line suggests, 'you can fool some people sometimes, but you can't fool all the people all the time'. The same is indeed happening in the Chinese realty sector. There is no denying the fact that although China appears to be a dream investment destination today, the ongoing rush to invest directly in China can turn out to be a real nightmare in the long term, especially in the hyped Chinese Real estate markets. As the world fights a deep recession, which is getting murkier by the day, much of the world’s global capital has been flocking to China in recent years in anticipation that China's growth can act as a protective shield. Although this investment route has worked well in the past year, now it seems like a perfect case of putting the cart before the horse. As China's inflated equity and real estate growth, built largely on government-led economic stimulus measures and soaring asset prices - which lead to low interest rates and massive fiscal deficits run out of steam, it's quite evident that the Chinese bubble is already on its way to bust - bringing an abrupt end to the boom.

The False Start Of SYSWIN: Shares of real estate consultant SYSWIN (SYSW), which sells real estate services in 17 Chinese cities including Beijing, Tianjin, Qingdao and Jinan. opened flat with their initial public offering price, then fell as investors reversed course on a risky bet on China's red hot property sector.

The company managed to sell only 9.6 million American Depositary Shares for $7 each, raising about $67.2 million. The uncertainty in the Chinese realty sector as a whole also reflected this when SYSWIN changed the proposed size of its offering three times leading up to its IPO. The company first filed to raise up to $100 million, raised that amount to $123 million, then delayed its pricing by a day and cut the proposed value of its IPO by 41.5 percent.

Imminent Realty Price Correction: A recent Bloomberg report has quoted Beijing-based analysts at BNP Paribas as saying that China’s home prices will start declining from this month as the government maintains its lending curbs and increases the supply of public housing, forcing property developers to cut prices to boost sales. China’s property developers, the worst-performing group on the benchmark Shanghai Composite Index this year, will…

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