Solving by Drawing

August 28th, 2008

Am a terrible artist yet feel naked without my little notebook on hand to sketch information, be it for a web page, property or even a contract. excellent @Google lecture puts the habit into perspective and adds much more. Looking forward to reading his  when it arrives next week.

Beijing Residential Rentals - 12 month outlook

July 31st, 2008

On the demand side, rents are dependent on foreign investment levels and the knock-on effect of increases in foreign staff. China does not yet appear to have been affected by shaky global sentiment. As for supply, we anticipate a drop in viable new residential developments coming on-line. In suburban Shunyi, where Beijing’s expatriate families live, it’s unlikely that opulent  new developments, ready soon, will appeal to expatriates. Increases in supply will be from landlords renovating older houses. Although there’s an abundance of land in the district, recent developments have been for retail space or commercial projects like the new Beijing Exhibition Centre.

In prime Chaoyang neighbourhoods developers are moving up-scale, choosing to only build luxury properties. Chevalier at Sanyuan Qiao is a typical example. Expatriates seeking new 2 bedroom apartments with rent budgets below RMB15,000/month will need to look further afield as future mid-tier properties will be built to the East and South of the CBD. Despite the added distance, new subway lines will continue to allow an easy commute.

Although the Olympics raised expectations in the Spring amongst some mid-tier landlords, it was only for short-term August rentals. Rents for villa and luxury apartments have always been immune to the Olympic effect. For the coming 12 months we expect rents to remain stable at solid developments like Park Avenue, Central Park and Yosemite. However, with poor occupancy since launch, we anticipate drops in rents at developments less popular with expatriates such as Rits Garden, Cathay View and Orchid Garden.
We do expect a slight surge in replacements in summer 2009 due to corporations having postponed rotations for expatriate families in 2008 because of the games. Note that expatriates whose rent allowances are tied to the dollar may feel the pinch if RMB appreciations continue.

Olympic Rents

July 24th, 2008

We saw it coming when Ascott serviced apartments placed an Olympic themed full-page advert on the back page of a magazine two weeks ago. Not wanting to seem glib, but we predicted this back in August 2007. Asking rents at 3-5 times the norm at many hotels and serviced apartments were ridiculous. Yesterday’s article on Bloomberg shed more light on the market. With corporate clients having booked well in advance, the money’s in the bank at the city’s premier hotels. For others, getting premium rents may be a struggle. We know of one high-end serviced apartment in the city that’s officially maintaining the premium Olympic rate but at the same time is discretely offering standard rates to some clients.

Commuting in Beijing

July 24th, 2008

It’s an even number plate day today. With half the city’s privately owned cars off the road, traffic is running smoothly. Secondary roads are free-flowing but there’s still significant traffic on main arteries like Changan Jie at peak hours.

The #10 subway that runs along the East 3rd Ring has just opened putting Chaoyang Park, Sanlitun and Lufthansa Centre within a short stroll of a station. It took a few days for Beijingers to get acquainted with it but the new swipe card ticketing system is running well too. Fares are still at a flat RMB2.00 irrespective of destination. Will they increase and become destination dependent as in Shanghai? The hardware’s certainly there.

Our handy new Beijing subway map can be downloaded here.

Q & A: Olympics and rents

May 30th, 2008

The games are two months away and developers are rushing to complete their edifices. The exteriors of China World Tower 3 & CCTV Tower will be ready but tenants will have to wait till the end of the year before fit-outs are completed. The Olympic venues are of course ready. Here’s the answers to questions I’ve been asked recently:

Q. Have apartment rents increased due to the Olympics?
A. Rents have increased about 10-15% (varying by complex) in the last 12 months but not for reasons directly related to the Olympics. For August 08, many landlords owning properties in the sub-RMB20,000 range are hoping to rent out their properties for 3-5 times the normal rent rent. This has caused some distortion on rents affecting long-term tenants moving in this summer. If Beijing follows the trend in Sydney and Athens, landlords with high expectations will be disappointed. Nevertheless, they are still high.
For apartments with rents above RMB20,000/month, there’s less of an Olympic effect.

Q. How about rent at serviced apartments?
A. There are still plenty of availabilities, but many serviced apartments are still asking for astronomical rents for August. Will they hold out, or drop their rents in June or July?

Q. Do you expect rents to come down in September?
A. Yes, but by not more than 5%. This will mainly be due to the slack from landlords who (successfully or unsuccessfully) kept their apartments for Olympic guests in August 08.

Q. How about rents at houses in Shunyi?
A. Again, we’ve seen 10-15% rent increases there in the last year but there’s little Olympic effect. Few tenants in Shunyi are associated with the Olympics and the more seasoned landlords in Shunyi are pragmatic. They prefer tenants who provide stable long-term term rental revenue from their tenants.

Tremors in the CBD

May 12th, 2008

CBD tremoursAt about 14:40, we felt a gentle swaying in our 21st floor office. Within minutes, we’d walked down the stairs and joined the thousands in the street below. The mobile networks were overloaded.

The epicentre of the 7.8 quake was in a mountainous region of Sichuan.  As I write, Rueters is reporting casualties in the southern region. The tremors in Beijing registered 3.9.

Price increases declining

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?

Retail real estate agents closing outlets

January 21st, 2008

In the last week we’ve been reading news articles on real estate chains closing retail outlets in major cities such as Shenzhen, Guangzhou, Beijing and Shanghai. In China, agents with a street-side presence deal in mid to low-end housing.

It’s not uncommon to see a row of 5-6 real estate agents on one street, and then another row of them round the corner or across the street. You’ll see both home-grown and foreign brands. Business owners wanting to buy into perceived respectability can join foreign franchises such as Century 21 and Baker Caldwell. Properties are not listed exclusively, so with few exceptions, all real estate agents have access to the same properties.

The two pre-requisites for entering the business are (1) a retail space in an area with a high density of privately owned mid to low-end housing (2) A team of resourceful salesmen

Streets with a row of real estate agents are market places in the truest sense. Some start the day with the rather foreign practice of lining up outside the front door reciting self-encouragement slogans. Signages may be large, but retail spaces barely seat the employees who spend much of the day on the pavement, ready to deal with potential clients. In Shanghai, where business is always at a faster pace, a squad of electric bikes is always on hand to zip out to a property with a potential client. The incentives are strong. Salesmen are typically from the provinces where there’s an abundance of young people willing to give it a go. Basic salary is low or non-existent. In good times, the talented have made fortunes in a market where negligible capital gains taxes encourages flipping. But for every success story, there are many who barely scrape by. Reports mention that some have not been paid commissions due.

The Chairman of Changhui, one of the afflicted chains was quoted by as saying they’d “grown too fast and too big” (source: AP). With such low barriers to entry, it’s not surprising. The signs of over capacity were there. In the last six months, we noticed retail agencies setting up makeshift stands outside subway stations at peak hours in an attempt to reach out to clients.

Plastic bag ban

January 14th, 2008

Thursday’s announcement that ultra-thin plastic bags will be banned by 1 June 2008 has received massive media coverage in recent days. Supermarkets and shops will have to charge for thicker plastic bags, currently provided free. Jenny Lous (RMB0.20) and IKEA (RMB1.00) took the win-win plunge months ago.

Do your bit and stuff your washable Lihong tote in your regular work-bag.

Yuan value

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