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China Real Estate Report Q4 2011
Business Monitor International, Sep 2011, Pages: 58
China’s commercial real estate sector remains robust and buoyant, aided by the receipt of investment funds from the increasingly restricted residential marketplace. Data from China's National Bureau of Statistics revealed that in the first seven months of 2011, CNY3.19trn (US$499bn) was invested in the country's property market. According to Business China, this is a 33.6% year-on-year (y-o-y) increase. The population is expanding, and both internal and foreign investment remains strong. Current Chinese economic policy has succeeded in slowing down growth in over-heated areas but as the likelihood of a slowdown in exports to the US and UK particularly increases, GDP growth is starting to fall below consensus levels. The government is trying all sorts of measures to reduce the rate of inflation and, alongside that, the price of housing.
Vacant office space in Beijing was at its lowest level for 20 years in H111, according to Jones Lang LaSalle. Supply is lacking all over the country and in all sub-sectors. CB Richard Ellis reports that too few suitable and available industrial properties mean that industrial rents are being driven up. It also looks likely to cause the reintroduction of speculative development in the sub-sector.
The market for residential property experienced a different first half of 2011 than that of the commercial sector. The introduction of China’s Restriction Purchase Policy in February 2011 saw the number of residential properties sold drop dramatically and so it served its purpose. According to Colliers, this has had a number of different effects on the industry; some larger, luxury-end developers have postponed project launches, and smaller developers have sped up developments to get units sold ahead of perceived further tightening and restrictions. The residential sector is the anomaly in an otherwise buoyant and expanding real estate sector.
Key Opportunities In The Real Estate Market:
- Shanghai Securities News reported in July 2011 that the Chinese government may publish a list of additional cities that will be required to limit home purchases. This is likely to include the eastern cities of Kunshan, Jiaxing, Changshu and Yangzhou, and the southern city of Zhuhai. This will encourage development of commercial space rather than residential property.
- Plenty of M&A activity as Centaline Property reported 62 equity merger cases with a total value of CNY17.5bn in H111.
- Rents and capital prices are increasing and show no signs of abating in the near future. Key Risks To The Real Estate Market:
- Domestic property developers have begun to seek financing in Hong Kong amid tightening macroeconomic policies in mainland China.
- China Daily reported in June 2011 that 15 property developers had started investing in the mining industry, attracted by rising metal prices and significant potential returns. According to the China Mining Association, the total investment is CNY19.26bn.
- Residential developers have had to delay projects or cut prices under the current stringent house buying rules. In July 2011, Bloomberg reported that Glorious Property Holdings, which has projects in 10 Chinese cities, plans to cut the prices of its residential properties at two cities; Hefei and Nantong. RBS reports in the article that the drops are because of bad sales recorded in the first half of 2011.
- The government’s efforts to slow the housing market are creeping into other development areas. In August 2011, the National Development and Reform Commission banned the construction of theme parks, as reported by the Financial Times. Amusement parks worth over CNY500mn (US$78mn) and covering more than 20 hectares can no longer be constructed in China.
- Government spending on large infrastructure projects is under review as an investigation on all current projects is under way, following a train collision in Zhejiang province in July 2011.
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