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China Real Estate Report Q1 2011
Business Monitor International, Nov 2010, Pages: 69
The China Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's Real Estate industry.
The latest (mid-2010) round of interviews with our in-country sources in China confirm that, overall, the authorities in Beijing (who see the real estate sector as an instrument with which the overall economic growth rate can be lifted to) and local governments (who part fund their operations through land sales) have been reasonably adroit in their management of markets. Across the four cities from which we have gathered data – Beijing, Shanghai, Wuhan and, from mid-2010, Shenzhen – price falls and property gluts were a challenge for protagonists in most sub-sectors two years ago. Now, the markets have stabilised. Our in-country sources reported that rental rates have fallen by single-digit amounts in each of the three main sub-sectors in Shanghai. Rentals has moved sideways or tracked sideways in the other cities.
Looking forward to 2011, our sources are confident that rental rates will rise in Shanghai and Beijing. The improvement in conditions is not just the result of a government fiat. It is partly a reflection of the general buoyancy of the economy and official attempts to boost domestic demand in the wake of the global financial crisis. It is also a reflection of ongoing urbanisation, a mega-trend, which involves one of the largest migrations of people in the history of mankind. However, it has also become obvious that real estate developers discounted property through 2009 and early 2010 in order to make sales. Looking forward, we expect that capital values and yields will change little. We note, however, that rents may rise in Shenzhen from 2012 as new space is made available as a result of projects, which are currently under way. Crucially, we remain confident that the various protagonists (ie the developers and the various governments) will be able to manage supply/demand conditions so as to prevent a precipitous collapse in rental yields.
This report is based on interviews with in-country sources in late February and July 2010. In the immediate future, it is likely that our sources will comment on the impact of official measures to slow activity in the residential real estate market, particularly in Beijing and Shanghai. For what it is worth, we see the residential real estate market as being resilient. Press reports in late October 2010 indicated that the combined sales of the Big Four developers – China Vanke, Gemdale Corporation, Poly Real Estate Group and China Merchants Property Development – amounted to CNY137,700mn in the first nine months of the year – or about 4% lower than in the previous corresponding period. Particular developers have suffered lower sales and/or have had to cancel proposed capital raisings. However, there are few signs of real stress. If there is a risk, it is that the bubble that persists in particular markets (particularly parts of Shanghai and Beijing) results in a more aggressive tightening in policy by the People’s Bank of China and the China Banking Regulatory Commission. In the meantime, particular vertically integrated developers should be able to benefit from the government’s substantial social housing program.
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