Colliers: Promising investment climate for China properties

KUALA LUMPUR: The prowess of real estate markets in China has not gone unnoticed as the major emerging economy continues gaining momentum against a backdrop of a gradually improving global landscape.

In China, the world's third largest economy, real estate consultants said the potent combination of sufficient liquidity, optimistic economic outlook and smaller perceived risk of dramatic changes on monetary policy, had spurred local and foreign property developers and investors to acquire real estate assets.

“Improved occupational demand has brought about growing net absorption of new office space. Strong local consumption sustains the growth in retail sales and in turn, the demand for prime retail space.

“Luxury residential properties remain a popular choice of investment despite impending consolidation due to the government’s measures to cool down the overheated market.” Colliers International managing director for North Asia Alan Liu said in a statement dated March 30, 2010.

According to Liu, rentals across property sectors in China will stabilise, with some cities experiencing steady growth in line with the strengthening economic fundamentals there.
Property investors’ interest in the China market, Liu said, was sustainable, as local investors had accounted for a major share of sales transactions in the past year. However, foreign real estate investors there have yet to catch up.

Investment properties in the second and third tier cities are beginning to hog the limelight for their higher returns. According to Liu, investors generally demonstrate strong interest in office, retail and residential properties in first-tier cities. In second tier cities, retail and residential entities are more popular.

Rising demand for prime office space in China is expected to result in less office space, hence, upward pressure on rental rates in major cities, according to Colliers.

In Beijing, demand for Grade A offices should continue growing, with total net absorption (take-up) exceeding 280,000 sq m by year end.

"The surge of new supply should offset the rental growth momentum, bringing about a ‘W-shape’ rental movement. With an expected recovery in demand in 2H (second half) of 2010, rents should become stabilised by end-2010 and start to grow again in 2011 and beyond," Liu said.

The decline in rates for Office space in Shanghai is expected to " taper off " over the next 12 months while prices are expected to register a steady increase after hitting the bottom in 2009.

In Guangzhou, the anticipation of more foreign companies setting up bases is expected to sustain demand for offices there. However, as rental increases have yet to catch up with sale prices, yields are expected to compress further.

Anticipation of less sales in the mass market residential property segment have prompted the expectation for prices to decline.

According to Colliers, a consolidation in the mass market for residential units is expected to continue with an expected price drop of 10% in Shanghai. In Guangzhou, prices are expected to decline in anticpation of fewer transactions.

In Beijing, Colliers said the residential market should continue to consolidate, but the average capital values of luxury residential units is expected to remain firm.

"Considering the improved economic climate, a full recovery in the leasing sector is expected," Colliers said.

The retail segment in Guangzhou is worth noting. The landscape there is deemed competitive considering substantial retail space entering the market.

"There have been many more first-tier international and high-end brands entering the market.  The increasing volume of retail sales of consumer goods will serve to sustain retail property rentals," Colliers said.