China’s top-tier cities post continued growth

2016 has been quite the year for China’s property sector. With property booms in top-tier cities such as Beijing, Shanghai and Shenzhen, overall investment in the country’s real estate rose by 6.9% last year.

chinaSince the property sector is one of China’s main sources of economic growth, and her economy did grow by 6.7% last year, fuelling 40 other main business sectors in the country, economists, the China government would no doubt hope for continued success this year. But there have been concerns that the pressure on the property bubble is building up and might be reaching bursting point.

Despite the government’s attempts to cool the market with rapid and frequent policy changes over the past couple of years, property investment growth has hit a 11.1 per cent high last December, up from the 5.7 per cent in the month before. Though home prices in some cities have began to fall slightly, analysts are seeing that market sentiments are hardly sensitive to policy shifts. Should the policies stick, any significant changes will only come with time. As most investors consider property-ownership the most feasible and desirable means of adding to their income, demand in top-tier cities remain high despite soft price growth.

GuosonCentreRecent shifts on the international front however may mean continued growth in the real estate market within China as more investors look inward, what with the Trump administration turning things on its head with his trade agreements changes. It may be in the government’s interest to acquire land revenue while keeping an eye on a burgeoning real estate sector which on the plus side will boost economic growth but may cause bigger issues later on if allowed to continue on its upward trajectory.

China authorities set limit on property loans

As the property market in China continues to soar, the Chinese government has set about implementing rules in further attempts to slow the market. Though they have put some gateways in place, those with stronger spending power may easily overcome those hurdles. Perhaps to speed up the cooling process, the authorities have placed a limit on the number of new home loans issued by banks.

hongkongpropertyUp to 35 per cent of bank loans in the first half of 2016 were from home loans and by August, the numbers have jumped to almost 71 per cent. Even as home prices rose, and rapidly, more were jumping onto the bandwagon, perhaps in fear of prices rising even further.

With a national population of more than 1 billion and growing, the government has a huge task in managing housing and an ageing population. While the property industry has boosted China’s economy, helping it to grow by 6.7 per cent this year, should property prices continue to rise, the country may be facing a diminishing capital reserve while struggling to manage credit risks and a possible sudden collapse of the property market with sudden fall in home prices which may put many out of a home, in debt and the banks in big trouble.

Within the country, 21 cities have already set their own property cooling curbs such as limiting the number of multiple property purchases to clamp down on property speculation and increasing the down payment. As the regulations change, more mainland Chinese are looking for property investment opportunities outside of China and Hong Kong is one of the first places they focus on. As more countries savvy up to the purchasing practices of the Chinese, such as Australia and Singapore, their eye-line may shift to emerging South-east Asian countries such as Vietnam, Cambodia and Laos.

Rents down but sales of some projects up

Home rental prices have been slipping with a 0.4 per cent and 0.5 per cent fall in the private non-landed apartments and HDB flats markets respectively.

Cairnhill Nine CapitaLandPhoto credit: CapitaLand

But perhaps the decline in rent has increased rental volume. There was a 8.2 per cent increase across the board in rental volume with 3,686 units leased this October as compared to 3,408 from the same month last year. On the same year-on-year comparison, rental prices were however down by 4.5 per cent.

The increase in rental volume may also be reflected in the sales volume this quarter as stronger home sales may have lifted earnings for some developers. CapitaLand for example saw a 28.4 per cent rise in net profit in Q3. Locally, their private residential projects, The Nassim and Cairnhill Nine, have boosted sales, together with their new projects in China – namely Riverfront in Hangzhou, New Horizon in Shanghai and Vermont Hills in Beijing.

nassimhillcapitalandPhoto credit: CapitaLand

In Singapore, they have sold 206 units in the second quarter, and a total of $1.24 billion in total sales value in the first 3 quarters of the year. With the happy increase in number of launches within the last quarter, sales volume may hit a positive note and ring in the festive year-end cheer come end December.

China real estate sector – impending bubble by 2018?

Property analysts are wary of a possible property bubble in China, especially after property prices in Shenzhen rose 60 per cent in a year. Despite the government’s attempts at curbing the rapid price rise, consumer fervency has spread from first and second tier cities to third and lesser-known cities and townships. The speed and extent at which China’s real estate sector is growing has economists concerned about an impending bubble and possible market crash. Some analysts have pegged 2018 as the year when things might take the turn for worse.

rafflescityshenzhenPhoto credit: CapitaLand

The fact that China’s banking sector is closely tied to the real estate industry, any shift in the dynamics may rattle the country’s economy. Akin to the property bubble in the United States in 2008, the fact that loans have increased to take up 71 per cent of new lending, up from 24 per cent within 8 months, indicates an increase that could be based on many gaps in the system.

Property prices are climbing so quickly that concerns for a sharp and drastic fall are well-founded. The unsubstantiated value of homes may cause an eventual collapse of the banking system as it becomes riskier for banks to loan such large amounts of money without a certain way of recouping the losses should the market fall. Having assets at hand which have no value or are not in demand will not bode well for individual property owners, funds nor banks.

 

 

Property prices in China continue to climb

Earlier in the year, China’s government laid down new regulations in an attempt to avert a property bubble, but if last month’s 33 per cent year-on-year increase in home value is anything to go by, they may have to do a whole lot more to prevent the real estate industry from travelling dangerously down the path of no return.

chinaProperty prices rose 1.2 per cent in August in 70 Chinese cities, not only in major cities such as Shanghai and Shenzhen but also in regional cities. Last year, the Chinese government relaxed rules on foreigners purchasing properties in China, and despite a slowing economy, property prices have continued to rise. Unrealistically? Perhaps. In Shanghai and Beijing alone, prices have risen 4.4 and 3.6 per cent respectively. In Shenzhen and Guangzhou, home values rose as well at 2.1 and 2.4 per cent respectively. Previously, only the first and second-tier cities had to grapple with sky-rocketing property prices, but the effect may have trickled down to cities of various tiers.

Property analysts are certain however, that as long as land supply remains stagnant and loans are fairly easily attained, the rise will continue. Previous curbs have yet to made a significant impact on the industry and as long as supply remains lower than demand, property prices will continue to climb.

New residential property in Hebei

Though the spotlight on some second and third-tier cities have dimmed, some bright sparks remain. Take the 533.3 ha Sino-Singapore Health City in Gaobeidian for example.

GaoBeidian1Photo credit: KSH Holdings

A Singapore-listed real estate and development company, KSH Holdings, has announced plans to launch a 3,050-unit residential project within the Hebei province by the end of 2016 together with their joint-venture partners, Beijing Jia Hua Hong Yuan Investment, Oxley Holdings, Lian Beng Group, Heeton Holdings and Zap Piling.

They continue to see potential for growth and demand for commercial and residential property development, especially as the infrastructure and shift in economics are favouring this particular township. With the high-speed train, Gaobeidian will only be a 20-min train ride away from Beijing. And with the food logistics centre moving to the city, the township is set to be an important hinterland.

GaoBeiDIanPhoto credit: KSH Holdings

The potential residential project launch will see up to 1,600 mass-market units priced between 4,000 to 5,000 yuan per sq m and 1,450 higher-end units priced between 7,000 to 8,000 yuan per sq m. And this is only a fifth of the 18,000 new homes the township will eventually yield in phase 1. The second phase will potentially yield up to 30,000 new residential units. The Gaobeidian development will also include a 40,000 sq m commercial site, a food-safety testing centre and even a mountain-climbing training centre.

No signs of weakening China property market

Shanghai and Shenzhen – both super cities for properties. Home prices in these 2 top-tier cities have not waned despite China’s government tightening rules on the property market.

Savannah Hong KongIn April this year, home prices in Shanghai and Shenzhen continued to rise 2.3 and 3.1 per cent respectively. Though the numbers are slightly lower than March’s 3.7 and 3.6 per cent, in light of economic instability in other countries, this is a good sign. Even within China, where internal restructuring, higher global competition and weakening demand have began to put the brakes on their economy, the property sector continues to enjoy the momentum of growth.

Just over a year, home pieces in Shanghai  have risen a whooping 62.4 per cent and that in Shenzhen have grown 28 per cent. Across 70 cities in China, home prices are now 6.2 per cent higher, a further increase from the 4.9 per cent in March. Besides buying in the mainland, Chinese investors are also buying up properties in various other international cities such as Vancouver, Sydney, Melbourne, Hong Kong; and countries such as New Zealand, Malaysia, Cambodia and Thailand.

Canada HouseEven while property prices in first- and second-tier countries continue to accelerate, third-tier cities are also beginning to post positive growth after a period of declining interest and sales. Policy makers are however concerned about the excessive lending and rising debt levels and may be prompted to tighten lending rules and implement further measures.

Chinese buyers inject new money into Aussie property market

In Australia’s major cities, the Chinese have purchase properties quickly and surely over the years. Property prices in Sydney and Melbourne in particular have been on full steam for a good 5 years now, having risen 55 per cent since while mortgage rates have fallen. The buying continues despite a fall in the yuan following last year’s global financial market bedlam.

SydneyKentSt ApartmentPhoto: Apartment on Kent St., Sydney.

As property prices in top-tier Chinese cities such as Beijing and Shanghai continues to inch up, more Chinese nationals are bringing their monies out of the country and looking for investment opportunities elsewhere on the globe. A 2-room apartment in Beijing sold for S$1.7million could more than comfortably fund a S$962,660, 688 sq m house just outside of Melbourne’s central business district. Most of the purchases made by Chinese Australian permanent residents are funded by relatives in China.

The Australian government has since clamped down on foreign investment as locals fear being priced out of the market. But Australian property analysts say that publicity around the issue of foreign-buying have made it seem bigger than is actually is. In fact, all the activity in the property market have helped to keep the property and construction industries busy and booming.