High end home prices keep rising in mainland China despite cooling measures

Luxury home prices in major mainland cities in China continued to rise in the second quarter of 2016 despite government cooling measures, according to the latest real estate market report.

In Shanghai, where non-residents are restricted from buying homes, sales decreased 20% quarter on quarter but as a key safe haven asset class, luxury homes were still sought after, says the report from international real estate firm Knight Frank.

In Beijing some 257 new luxury homes were sold, up 38% quarter on quarter, driven by booming supply and demand in the traditional peak season. In Guangzhou, where market recovery became slower, sales fell over 20% and inventory level fell 11.7% due to a lack of new supply.

The report says that the Hong Kong market remained polarised, with super luxury homes popular with billionaires, but other homes recording price drops because of an anticipated increase in supply and a potential interest rate rise.

In Taipei, the new administration did not emphasize curbing measures, which encouraged developers to launch new projects. Enquiry levels for luxury homes surged, but buyers were deterred by the high property tax, which dragged down sales to only 30% of the volume a year ago.

Overall prices and rents remained stable amid the low interest rate environment. ‘In the short term, curbing measures are expected to remain in first tier mainland cities but luxury home prices are set to rise, propelled by high premiums in recent residential land sales,’ the report explains.

It predicts that luxury home prices could fall 5% to 10% in Hong Kong and stay steady in Taipei for the rest of the year.

Meanwhile, in the commercial sector mainland Grade-A office markets remained active. In Shanghai, rents rose and the vacancy rate fell, driven by strong demand, with core business districts seeing satisfactory leasing performance.

In Beijing, rents continued to climb, although the vacancy rate edged up slightly with six new projects completed. Guangzhou was relatively quiet, with minor increases in both rents and prices.

The sales market saw transaction volume drop over 40% quarter on quarter and in Hong Kong, leasing activity was slow on Hong Kong Island due to the low availability of space and weaker demand from the mainland, while Kowloon East remained active, boosted by strong relocation demand from tenants on Hong Kong Island.

In Taipei, the letting market performed well with a good absorption rate, most notably in Xinyi District.

Overall rents and prices remained steady. Looking ahead, a huge amount of new supply is likely to impose upward pressure on vacancy rates in Shanghai, Beijing, Guangzhou and Taipei, the report suggests.

But it explains that the shift from Business Tax to Value-added Tax on the mainland is likely to reduce the tax burden and benefit the absorption of office space.