Archive for the ‘Economy’ Category

Residential Lease Report - Beijing - January 2011

Thursday, February 10th, 2011

Rents continue to climb. With Beijing expat numbers rising and with limited new supply on the horizon, this trend will probably continue.

In 2010, China attracted $106bn of foreign direct investment (excluding investments in financial instruments such as shares). An increase of 17.4% from 2009, according to the Ministry of Commerce. Enough to more than reverse the 2.3% fall seen during 2008. (source: BBC 18 Jan 2011).

Beijing has seen sharp increases in office space occupancy. Foreign companies, especially in the mining, infrastructure and technology have grown their operations and increased foreign staff. There’s also been a rise in medium sized foreign companies setting up offices in the city. German companies in particular have been prominent in this surge.

International school’s are always a good indicator of expatriate relocation trends. Waiting lists at Beijing’s two main international schools, WAB and ISB, are now at peak 2007 levels. In 2009 there were were no waiting lists at these two schools. At Beijing’s German School, there are now waiting lists for several age groups. This has not occurred before.

Supply of quality expat-friendly properties has not kept pace with demand. One reason is that the government is encouraging developers to build low-cost housing and discouraging lower density luxury developments, both in the city and in suburban Shunyi. Lofty property prices also mean that for landlords who purchase properties now, rental returns have dropped from lofty 15% to close to zero. For new investors, rents today fall far short of monthly mortgage payments.

In the city, Gemini Grove and Sanlitun SOHO were the only expat-friendly city apartment complexes to open in 2010. Park Avenue and Central Park remain the most popular mid-tier city expat residential communities. Both have seen rent increases of up to 11-37% (see below). Unusually, it is the 3 to 4 bedroom apartments that have undergone the highest increases. With the completion of high-end office towers at China World Tower 3 and WFC, both within walking distance, demand at Central Park will remain strong.

Embassy House is still Beijing’s most exclusive luxury apartment development. Despite high occupancy and premium rents, Embassy House has not had a viable competitor since opening in 2002. A competitor, The Ascott, has closed. As have East Gate Plaza and Yong He Villas, either because the buildings have been sold, or because apartments are being upgraded.

In suburban Shunyi, Rose & Gingko is the only viable new villa residential community. Occupancy climbed steadily in 2010. Interestingly, the Rose & Gingko developers sold their houses fully fitted-out making them ready to lease for landlords. This contrasts with the earlier trend of selling villas as bare-concrete shells, leaving the individual landlord to carry out all fit-outs. Yosemite houses were sold bare-shell. There are several downsides. Quality and decor varies, often not meeting expat standards. Also, the property management has difficulty doing repairs as the materials and appliances at each house differ.

River Garden, Yosemite and Beijing Riviera and the more exclusive Grand Hills remain solid expat favourites. Expat occupancy is heavily clustered at these four developments. Increased relocations have meant year-on rent hikes of 10-18% (see below). The other ten Shunyi villa communities have not managed to attract the all-important expat numbers either because of deterioration, or because of poor quality fit-outs.

Last June, Mercer’s Expatriate Cost of Living index, ranked Beijing 16th in the world behind Milan, and 6th in Asia, behind Seoul. The city’s continuing rent increases suggest the capital will at the very least retain its place on the ladder. Supply will remain limited for the foreseeable future. We don’t see viable expat-friendly properties (in terms of rent, location, quality and  interior decor) being launched in 2011.

Median Residential Rents *

Embassy House (City High-End)

- Apartment 2bed 213sqm RMB38,000/mth [Year on Increase 26.7% - RMB30,000/mth]
- Apartment 3bed 314sqm RMB55,000/mth [Year on Increase 22.2% - RMB45,000/mth]

Park Avenue (City Mid-Tier)

- Apartment 1bed 97sqm RMB9,500/mth [Year on Increase 18.8% - RMB8,000/mth]
- Apartment 2bed 150sqm RMB16,000/mth [Year on Increase 33.3% - RMB12,000/mth]
- Apartment 3bed 178sqm RMB22,000/mth [Year on Increase 37.5% - RMB16,000/mth]

Central Park 3-4 Phase (City Mid-Tier)

- Apartment 1bed 88sqm RMB10,000/mth [Year on Increase 11.1% - RMB9,000/mth]
- Apartment 2bed 139sqm RMB18,000/mth [Year on Increase 33.3% - RMB13,500/mth]
- Apartment 3bed 188sqm RMB24,000/mth [Year on Increase 33.3% - RMB18,000/mth]

Yosemite C-type (Suburban House)

- House 3bed 356sqm RMB36,000/mth (Townhouse 4bed) [Year on Increase 12.5% - RMB32,000/mth]
- House 4bed 425sqm RMB46,000/mth (Semi-D 4+1bed) [Year on Increase 15% - RMB40,000/mth]

Beijing Riviera - Upgraded (Suburban House)

- House 3+1bed 250sqm RMB35,000/mth (Type C 4bed) [Year on Increase 16.7% - RMB30,000/mth]
- House 4+1bed 406sqm RMB45,000/mth (Type B 4bed) [Year on Increase 12.5% - RMB40,000/mth]

* Note that these are median rents of a representative sample at each development. Actual rents vary up or down depending on specific unit and specific rent terms.

Released: 9 February 2011

Price increases declining

Friday, April 11th, 2008

Economist 0804This week’s Economist devotes a page to gloomy news on China’s property market. It mentions developers in Shanghai retaining list prices but offering rebates taking up to 10% off. While Shenzhen has seen prices drop by 28%, prices in Beijing remain more robust, but sales have definitely slowed.

An article in mentions a Central Bank survey in 50 Chinese cities showing that only 14.6% plan to buy homes in the next quarter, down 1.3% from the last quarter. The article also notes growing trend of investors choosing to hold and rent out their properties rather than sell. Rents at popular properties have increased by upto 15% over the last year. With the heady days coming to a close, it will be interesting to see how things pan out. Will increased supply slow the rent increases? With slowing capital gains, will landlords prefer steady rental income over flipping?

Yuan value

Monday, January 14th, 2008

As the CNY climbs to 7.27 against the USD, was interesting to read this week’s Economist citing two reasons, neither of which involve Washington:

- Reducing imported inflation, especially for food and raw materials. A question mark is placed on the efficacy of interest rate hikes in stemming inflation that is attributed to “supply-side shocks”.
- Snow-balling costs of holding down the CNY with falling interest rates in the US vs. rising rates in China.

The article notes: “Some economists argue that a big one-off revaluation would help to stem inflows by reducing the expected future appreciation of the yuan. But Chinese policymakers have stressed the need for gradual adjustment. To show that the currency is not just a one-way bet, the PBOC may try to nudge the yuan a bit lower in coming days.”

With rising rents in a lofty ‘08 (am refraining from using the “O” word) coupled with housing budgets set in USD, the data gatherers at firms like ECA will be under pressure not to under quote.

Source: Economist

Bank reserve ratio raised 1%

Saturday, December 8th, 2007

The central bank has announced that effective 25 December, China will raise the reserve requirement ratio by 1% for commercial banks. This pushes the ratio to a new high of 14.5% and is the 10th reserve ration increase this year. The move follows the government’s announcement that it will shift it’s monetary policy from “prudent” to “tightening”.With the coming CPI for the first 11 months expected to reach a new high, this move is aimed at stemming inflation rates. It is estimated that this will reduce liquidity in the market by RMB400 billion.

Source: China Daily