Luxury property prices and rents remain strong in Chinese cities but sales slow

Luxury residential markets in major mainland cities in China performed well at the end of last year with both prices and rents rising steadily in the fourth quarter of 2012.

But sales slowed with volumes in Beijing and Shanghai dropping from the heady highs of previous quarters, according to Knight Frank’s latest Greater China property market report.

It also says that developers in Shanghai and Guangzhou were active in launching new luxury homes, hoping to meet annual sales targets.

In Beijing the Five Year Land Supply Plan indicated that there would be no residential land supply within the city’s third ring road until 2015 and the scarcity of luxury residential projects secures their potential for appreciation, it points out.
Although luxury sales dropped from the high levels of previous quarters, some 1,600 homes were sold in the fourth quarter, a relatively high level for the past three years.

Prices maintained a steady growth of 2.1%, quarter on quarter, to reach RMB41,804 per square meter and monthly rents rose steadily by 2.5% to RMB158.6 per square meter.

Following robust sales in the third quarter, luxury supply dropped over 50% in the fourth quarter of 2012, owing to fewer property launches. Nevertheless, luxury home sales area rose 49% during 2012 with strong demand from end users, upgraders and buyers who bought real estate to fight inflation.

The report says that sales in the city are expected to fall in the first quarter of 2013, as the Chinese New Year is traditionally a slow season. However, due to the overall market recovery during 2012, home prices could continue to grow moderately with steady investment returns.

Shanghai’s luxury residential market witnessed strong recovery towards the end of 2012 with monthly sales rebounding, driven by sales in Xuhui District and Little Lujiazui. However, sales in the fourth quarter dropped for the second consecutive quarter, down 5.4% from the third quarter and 12.3% from the second quarter, the sales peak of the year.
Luxury prices also grew for two consecutive quarters, averaging RMB55,712 per square meter, up 10.3% quarter on quarter. With an average price of RMB144,318 per square meter COFCO Ocean One in Lujiazui was one of the highest priced projects in Shanghai in 2012.

Growth in luxury monthly rents slowed to 0.2%, quarter on quarter to RMB175.5 per square meter. Homes rented for less than RMB20,000 a month enjoyed strong demand and robust activity.

In the fourth quarter, new luxury supply reached about 140,000 square meters, up over 100% quarter on quarter. Tishman Speyer launched 217 apartments in The Springs in Jiang Wan New Town at RMB44,000 per square meter on average.

The report days that as in Beijing, luxury sales in Shanghai are expected to decline in the first quarter of 2013 for similar reasons. In 2013, luxury prices are expected to maintain moderate growth, due to sustained demand in prime areas.

Since the second half of 2012, Guangzhou’s luxury property market has experienced a marked upturn in both sales volume and prices. During the fourth quarter, sales remained steady for luxury homes worth above RMB30,000 per square meter. Luxury residential prices averaged RMB34,011 per square meter, up 9.4% quarter on quarter, the biggest rise since 2011.

Thanks to demand for residential leases from international companies, the average luxury residential monthly rent grew a further 0.5% from the previous quarter to RMB123.2 per square meter, the highest level of the past three years.

The report points out that during 2012, developers were active in launching new homes, pushing up supply levels. Luxury supply in the fourth quarter grew 53.3% quarter on quarter with major projects including Forest Hills in Tianhe District developed by Sun Hung Kai Properties and The Bayview in Pearl River New Town developed by Kingold Group. The prices of the latter reached as high as RMB100,000 per square meter and the two provided about 200,000 square meter of residential space to the stock.

‘In light of the solid rebound during the second half of 2012, the Guangzhou luxury residential market is set to recover further in 2013, with luxury prices rising 3% in the first quarter and about 10% over the year,’ the report says