Chinese property markets set for a stable year

The outlook for residential and commercial property in China is set to depend on the Chinese economy in 2014 with home inflation curbs set to continue, according to the latest report from international consultants Knight Frank.

It points out that the background to 2014 is one where last year the mainland China government continued to roll out home buying restriction policies.

But home prices started to rise rapidly in March and in October, in order to curb the price surge, Beijing released the self use commodity homes policy, dragging down transaction volume dramatically and slowing down home price growth.

However, luxury home prices surged 17.1% over the year and in the commercial sector retailers were cautious in their expansion plans due to slower consumption growth. New retail property supply reached 500,000 square meters with vacancy rate at below 10% and rents remaining stable. However, online retail sales continued its fast growth. On line shopping was playing a major role in driving retail sales growth in Beijing.

In Shanghai sales of new luxury residential projects remained hot in 2013 despite the release of curbs to further control the market. The annual sales rate for some new projects surpassed 60% and the average price of luxury homes increased by 7.3% year on year to around RMB60,000 per square meters.

About 510,000 square meters of new Grade-A offices was added to Shanghai in 2013, but premium Grade A office supply remained limited. Grade A office rents remained nearly unchanged compared to 2012. Office transactions dominated the property investment market with a total value over RMB30 billion.
The openings of new high end shopping malls clustered in downtown areas in 2013, including K11, iapm and Jing’an Kerry Centre Phase II, providing about 342,000 square meters of space, up 16.8% year on year. With e-commerce continuing to expand, growth in the luxury retail industry, the upscale catering industry and the traditional department store industry remained slow.

The government imposed numerous restrictions on the hot residential market in Guangzhou in 2013. The total area of new homes sold for the first 11 months slightly dropped year on year, but prices in downtown surged 17% to about RMB30,000 per square meter.
Grade A office new supply reached about 500,000 square meters last year, mainly in Pearl River New City, pushing up vacancy rate and suppressing rental growth there, but attracting relocation demand from tenants in the traditional Tianhe North business area. A number of new offices were launched in the investment market, with favourable locations, views and facilities, pushing up office prices by about 9%.

The retail property investment market was robust. Metropolitan Plaza in Liwan was sold for RMB2.6 billion to a fund. In the traditional downtown, about 200,000 square meters of malls were completed, including the 84,000  square meter Rock Square in Haizhu. Retail vacancy rate remained stable in Guangzhou, with rents recorded minor growth, the report points out.

In Hong Kong the residential market was quiet in 2013 with the launch of regulatory measures curbing both demand and supply. The sales volume plunged to a record low, while that in the secondary market also reached a level even lower than that during the SARS affected 2013. However, prices remained resilient.

Grade A offices sales were sluggish in 2013 due to various cooling measures and lowered loan to value ratio for commercial properties, with very low transaction volumes and slightly dips in prices. Leasing activities were stable. The redevelopment of office buildings created strong relocation demand. Rents in Central stabilised along with the absorption of vacant space.

‘In 2013, although the unstable global economy coupled with slower retail sales growth put a damper on rapid expansion by international brands, the retail leasing market still saw moderate growth with growing numbers of Mainland visitors. Their changing spending pattern to the mid market stimulated the expansion of mid range brands. More retailers shifted to shopping areas targeting Mainland travellers,’ the report says.

Looking to the year ahead, the firm predicts that strong end user demand and inflation expectations mean that housing prices are expected to grow further, but at a mild pace.

With a stable economy and limited new Grade A office supply in 2014, Grade A office rents are expected to remain stable at relatively high levels and with online shopping continuing to expand, department stores are expected to face tough challenges.

The foundation of the Shanghai Free Trade Zone is expected to further benefit all types of properties around it. About five million square meters of Grade A office supply in the coming three years are set to drag down rents by 2% in 2014. The supply of new retail properties will concentrate in non-CBDs in 2014. Retail property rents could rise another 55 to 8%.

It also predicts that in downtown Guangzhou home prices would continue to rise steadily due to strong demand and further declined in supply. With about 600,000 square meter of Grade A offices to be launched, vacancy rate will remain high, suppressing rental growth. New supply in the investment market will hold prices firm. Rentals in traditional shopping areas will remain high, with no new shopping centre supply there in 2014.

Residential sales in Hong Kong could drop further with continued cooling measures and increased supply. The report also says that Grade A office leasing is set to remain stable with sustained demand and adds that retail sales growth could further slow, resulting in a stable rental environment in the retail leasing sector.

However, commercial property sales could start to defrost with capital accumulation and the absorption of cooling measures’ impact.