China saw strong property markets in 2010 but residential expected to decline in 2011

The Beijing real estate investment market witnessed a buoyant end to 2010 with transaction volume rising significantly, according to a new analysis from property consultants CB Richard Ellis.

The market continued to be dominated by domestic corporations and institutions while foreign institutions remained inactive. Government measures to limit flows of hot money and new restrictions on the ability of foreign ndividuals to acquire residential and commercial properties on the mainland further dampened overseas purchasing sentiment.

The report says that the first two months of the year is traditionally a quiet period although a number of deals that were unable to be finalised during the busy run up to year end 2010 should carry over to the first quarter of 2011.

‘The outlook for the first quarter of 2011 remains positive although foreign investors will find it increasingly difficult to close deals as long as pricing remains high, bidding for quality assets continues to be extremely competitive and the regulatory environment tightens,’ the report says.

Activity in the Shanghai real estate investment market picked up in the second half of the year and the period saw a noticeable spike in both transaction volume and value.

Income producing assets continued to attract the most interest from institutional investors while developers stepped up their acquisition of prime development sites. The average office capital value index rose quarter on quarter by 1.6% during the review period while the period also saw a further jump in the price of luxury apartments by 1.5% quarter on quarter, despite the Shanghai municipal government’s introduction in October of restrictions on the purchase of additional residences by households being those required for their own residence.

In November, The Ministry of Commerce released its ‘Notice on Strengthening the Administration of the Approval and Filing of Real Estate Investment by Foreign Enterprises’, aimed at further restricting real estate investment by foreign capital and stipulating that foreign developers should not speculate on the purchase and resale of real estate projects or projects under construction.

'However, the impact of the Notice on the Shanghai property investment market was less severe than originally expected, because it does not restrict the acquisition of property with an offshore structure or sites or projects under construction by established foreign developers, these being the vehicles by which the majority of foreign property investment deals in Shanghai have been completed to date,’ the report points out.

The PBOC raised the lending rate twice in October and December by 50 bps, indicating that monetary policy is shifting from ‘moderately loose’ to the more prudent ‘steady’.
However, the release of the new credit quota at the beginning of 2011 is expected to stimulate short term liquidity to rise to a fairly high level.
  The report says that the strong expectation of RMB appreciation will help sustain investor interest and will to a certain extent allow investors to justify and compensate deals traded at low rental yields.

While the capital value of commercial assets is expected to stay firm, the price of residential property is likely to cease growing.

Activity in the Guangzhou real estate investment market declined in the fourth quarter of 2010, although sentiment generally remained upbeat and a rapidly expanding domestic retail sector has generated a strong need for prime logistics properties in Guangzhou from local retailers and manufacturers with demand now spilling over from the leasing segment into the sales market.

As land prices on the primary market have reached record highs, the acquisition of development projects and sites on the secondary market are very likely to remain the focus of the investment market in 2011,’ it concludes.