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BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

In 2016, China’s central government unveiled a series of policy controls to dampen the risk of housing price bubbles and to enhance affordability for owner-occupier buyers. This also restrained the return on opportunistic development strategies, which led some investors to seek investment substitutes that enjoy stable income returns and lower cyclicality of capital values. Since the privatization of housing in China in the late 1990s (which the ruling Communist Party previously had not allowed since 1949) the development of strata-titled residential towers was a preferred strategy for many investors. But price growth in that market segment was so rapid that even relatively strong wage growth could not keep up, and housing has become unaffordable, especially in Tier 1 cities. Chinese millennials now surpass 400 million in number and account for almost a third of the total population. They, along with other segments unable to buy their own apartment, generate good demand for the private rental sector. Rental residential stock and even co-living-operated residential stock has thus appeared on the radar of developers and investors alike.

RESIDENTIAL LAND SALES MARKET HAS COOLED

The average sales price of prime, first-hand residential land in Tier 1 and 2 cities grew by the lowest level in seven years in 2H 2018. This cooling appetite for residential land is attributed to deleveraging pressure on developers and a slowdown in the residential transaction volume. The modest rebound recorded during 1H 2019, saw the average prime prices of Tier 1, 2 and 3 & 4 cities up by 13.9%, 20.0% and 19.8%, respectively. Nevertheless, we do not expect the buying momentum by developers to be maintained as the central government continues to curb both domestic and overseas funding channels. Meanwhile, some local governments have tightened regulations for residential land site sales and are forbidding unit pre-sales in those cities with overheated prices, thus increasing risks for developers.

OCTOBER 2019

21,755.84

5.1%

Nikkei 225

26,092.27

1.4%

Hang Seng

2,905.19

0.7%

Shanghai Composite

108.06

0.5%

Yen/Dollar

Data points through end of September 2019. Change represents month-over-month change.

FIRST-HAND RESIDENTIAL LAND SALES GROWTH WELL BELOW LTA
PRINCIPAL CONTRIBUTORS:
 
Shane Taylor
Juliet Cha
MONTHLY HOUSE PRICE GROWTH STILL POSITIVE

Earlier this year, central authorities reaffirmed a differentiated real estate policy called “one city one policy”, where each major city implemented its own supply-demand policy in order to stabilize its residential market. Several overheated cities further tightened housing price restriction policies and land auction regulations in April, and this is reflected in the drop of the number of cities with monthly price growth. New home prices, excluding government-subsidized housing, climbed in 55 of 70 major cities tracked on a monthly basis in August 2019. Prices fell in ten cities from the previous month and were unchanged in five cities. By city Tier, the average sales price of new housing edged up by 0.3%, 0.5% and 0.7% on a monthly basis for Tier 1, Tier 2 and Tier 3 & 4 cities in July 2019.

MOST MAJOR CITIES SEEING MONTHLY PRICE RISES
Note: Green background shading signifies generally restrictive housing policies and orange signifies generally accommodative housing policies.
Sources: National Bureau of Statistics, CBRE Global Investors
GROWING POPULATION OF RENTERS

Many cities across China have targeted inflows of graduates and highly skilled, talented workforces to attain their aspirations of more rapid and higher-quality economic development. Tier 1 cities and strong Tier 2 cities, with higher GDP bases, have logically attracted greater inflows. The average population increase from 2011 to 2018 was 125,000 people p.a. in those eleven cities, which recorded 2018 GDPs of between RMB 1 and RMB 2 trillion in 2018. While an even greater 254,000 people p.a. increase was recorded in the five cities with GDPs over RMB 2 trillion. As home purchase restrictions extend to new arrivals (non-locals in Tier 1 cities must pay income taxes for five consecutive years to be allowed to purchase residential units) this situation has been driving residential leasing demand and rent levels.

POPULATION INFLOW CONCENTRATES IN LARGE, AFFLUENT CITIES
Sources: National Bureau of Statistics,CREIS
MORE LAND SITES FOR RENTAL HOUSING USE

Many local governments across China have pledged to support the development of more rental housing to the mix of options available for their residents. The first such land parcel for rental residential development in the modern era was sold in Beijing in November 2016. A total of 447 land sites for rental housing have come to market between November 2016 and July 2019, with combined, planned GFA of nearly 16 million sqm (CREIS as of July 2019). Shanghai, Hangzhou and Beijing have been the top three cities for rental housing land supply, and together saw nearly 60% of the total of such land sales nationally. Land auctions are not the only channel to build rental residential: market players may purchase existing properties, seek appropriate approvals and renovate them into rental units.

SUPPLY OF RENTAL HOUSING LAND SITES
Source: CREIS
CAREFULLY SELECT RENTAL HOUSING INVESTMENT MODELS

A growing number of startups, operators, developers and investors have entered into the rental housing market in just the last few years and this has led to strong competition. In order to compete for a slice of the rental market, some players have adopted an aggressive business model by paying high prices to landlords in order to secure units for long-term lease and subletting at lower prices to individual tenants to achieve ideal occupation rates. These players faced greater financial pressures, and several of them went bankrupt. More sophisticated investors would not likely take on an asset-light business model. There are over 90 branded co-living apartment operators in China, the two largest being Mofang, (invested by Avic Trust, Warburg Pincus and DT Capital), and Port Apartments, owned by local developer – China Vanke.

LARGEST RENTAL HOUSING BRANDS IN CHINA
Note: Dark green bars refer to operators and light green bars refer to developers/developer-operators.
Source: CRIC, data as of 1H19
Related Content

Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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