Residential property market in China picked up in third quarter of 2015
The residential property market in mainland China picked up gradually in the third quarter of 2015 amid a series of favourable policies such as cuts in interest rates, relaxed restrictions on foreign purchase and an easing of housing provident fund loans.
Luxury home prices rose further in first tier cities including Beijing, Shanghai and Guangzhou, where the markets continued to clear inventories, according to the latest Greater China property market report from international real estate firm Knight Frank.
It says that the favourable policies will continue to benefit first tier cites, but are less effective in lower tier cities with high inventory levels and weak demand.
‘With Chinese and Hong Kong’s stock market volatility and concerns over an interest-rate hike in the US, Hong Kong’s luxury home buyers tended to wait and see, while secondary landlords were also firm on asking prices, resulting in declines in home sales, rents and prices in the luxury market,’ it explains.
It points out that more residential properties are scheduled to complete next year, which will impose further pressure on luxury home rents and prices.
In Taipei, amid the government’s regulatory measures, luxury home transactions declined. Landlords became more inclined to hold and rent out their residential assets, leading to increased leasing supply.
Nevertheless, luxury residential rents and prices remained stable during the third quarter and the outlook is one of polarisation. The report says the market will be affected by cooling measures, the launch of a combined property and land tax and market expectations.
‘Premium residences in the downtown area will have prices remaining firm, while non-prime luxury homes will experience downward pressure on prices,’ it adds.
For the commercial market, the report says that Chinese stock market volatility coupled with growing fears of a slowdown in domestic economic growth, led to a slower pace of corporate expansion, hence weighting on Grade-A office rents in major mainland cities.
On the other hand, the People's Bank of China has actively cut interest rates and the reserve requirement ratio since the beginning of this year, aiming to release liquidity in the financial system and ultimately to boost the economy.
Grade-A offices prices in Beijing, Shanghai and Guangzhou rose as investing in such properties became increasingly attractive in such a low interest rate environment. With the completion of more Grade-A office buildings in the cities, rents are expected to face further downward pressure in the future.
Hong Kong's Grade-A office market recorded strong performance. With sustained office demand from mainland financial institutions but a lack of supply in core business areas, the vacancy rate fell sharply and companies had to rent at higher rental costs.
Due to extremely low availability and high rents in core areas, some firms shifted to more cost effective offices in non-core areas where supply was abundant. This trend is likely to continue next year, the report says, with further growth in office rents in core areas.
In Taipei, over 80,000 square meters of Grade-A office space was added to the market in the third quarter. The report says it will take time to absorb the new supply, resulting in a higher vacancy rate. However, rents are expected to remain stable with huge potential office demand from foreign enterprises.
With the growing popularity of online shopping, the double digit growth of overall retail sales did not stimulate the retail property market, the report also points out. Overall, during the third quarter prime retail rents and prices in Beijing and Shanghai continued to decline, while they remained stable in Guangzhou.
‘Shopping centre operators actively introduced premium brands, improved their tenant mix and promoted online marketing to boost foot traffic. Further popularity of outbound tourism is expected to impose pressure on the mainland’s retail and retail property markets,’ the report says.
‘Visiting Hong Kong became more expensive with the ongoing strength of the Hong Kong dollar, leading to a negative growth in visitor arrivals for the first eight months of this year,’ it explains.
‘With China’s anti-corruption campaign, mainland visitors shifted to mid-end products, resulting in a deteriorating retail sector in Hong Kong. With fewer visitors in prime retail locations, prime retail rents and prices declined in the third quarter,’ it points out, adding that recent rental corrections are expected to bring new tenants to and promote diversity in prime streets.
In Taipei, the entry of international brands sustained retail rents and prices in prime shopping areas at stable levels. Because of the high rents, some stores were sublet for cost saving.
Looking ahead, it says that in the coming year, retail rents in prime locations are set to remain firm, but those in non-core areas could slightly decrease.