Improvements Forecast for China’s Real Estate Market

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SHANGHAI, Feb. 2 – Crispins Property Investment Management, the highly respected China-centered property investment firm, has just released their latest report on China’s nationwide property markets.

Founded by Shanghai-based real estate expert Sam Crispin in 2002, the report includes commentary on the property markets in Shanghai, Beijing, Tianjin, Guangzhou, Shenzhen, and Hainan can be read below. A copy of the report can also be downloaded here.

China’s property markets are forecast to decline by 15 to 20 percent on average in the first half of 2009 before stabilizing by the summer and improving towards the end of the year, according to a new report by Crispin Property Investment Management (CPIM), in Shanghai.

CPIM expects most of the government measures brought in to control the property market since 2004 to be reversed in stages during this year. This will not underpin the recovery but will provide the regulatory background to permit the market to find its own way to recovery.

Despite a number of negative factors and declines forecast, not all sectors, segments and locations are behaving in the same way. In the Bohai Bay area, whose economy is less dependent on exports, some cities are seeing half the number of buyers in while in others transactions are only 11 percent down.

Tianjin and Beijing prices almost unchanged over the full year in 2008. Average land prices closed at RMB1,380 per square metere in Tianjin, almost 42.5 percent down from the previous year.

According to the CPIM report, the main story for key cities in the Pearl River Delta has been the alarming fall in house prices, especially in Shenzhen with some middle-end developments seeing a 40 percent loss in value.

Apartments at Taihua Sunny Bay were RMB12,500 per square meter in early 2008 but their price fell to RMB7,500 per square meter by November the same year. Transaction volumes were also down in the PRD with Guangzhou and Shenzhen seeing 38.2 percent and 28.5 percent drops respectively in 2008 from the previous year.

Falling transaction volumes throughout 2008 also illustrate the malaise in the property markets in the Yangtze River Delta. In Shanghai, house prices have dropped by an average of 11 percent within the inner ring road between the start and end of 2008 according to China’s National Bureau of Statistics.

However, high quality developments in exclusive locations have survived the price drops. For example, prices at Lakeville in Xintiandi only fell by 5 percent between the start and end of 2008.

CPIM highlights a recent land transaction in Shanghai’s Zhabei District where the transacted price was RMB11,500, the reserve price.

Allowing for construction, financing, contingency and profit the developer seems to be expecting a sales price of RMB20 to 30,000 per square meter compared with the current price of RMB16,000 per square meter.

“The seeds of the next boom are being sown in the current downturn if they’ve got their numbers right,” said Crispin, who is also the current chairman of the Shanghai British Chamber of Commerce and a chartered surveyor. .

Property developers are responding in different ways to the harsher market conditions. Tianan for instance has developed a niche in cyber parks, turning lower value industrial sites into higher value business parks.

COFCO and China Resources have had success with Joy City and Mixc branded shopping centers while Shimao have taken their large scale high end housing development formula a step further by adding mixed use components to broaden their appeal.

CPIM reports that one ray of sunlight came from a slightly unexpected location. Hainan Province, China’s sunniest, turned out to be the best performing market in China in 2008 and probably therefore one of the best worldwide. At the end of 2008, residential prices in Sanya and Haikou were 8.1 percent and 6.8 percent up respectively on the same period in 2007.

Overall, government intervention to support the market is giving CPIM cause for optimism. “It isn’t everything, but government support in the socialist market economy counts for an awful lot” said Crispin. “Municipal governments are already moving to mop up some of the surplus inventory.

“At the very least Chinese banks are still standing and still lending and this is a key point of difference with many other markets around the world, the key for China being ‘last in first out’ of the slowdown. If nothing else, we can expect China’s real estate industry to finish the Year of the Ox on a higher note than the Year of the Rat ended, Oxish rather than bullish but still a good enough reason for growing optimism.”