27 March 2017
Greater China Property Market Report Q4 2016
Slower Growth In Mainland Housing Market Amid Cooling Measures
During the fourth quarter (Q4) of 2016, residential markets in major Mainland cities slowed down amid further market cooling policies. The office and retail markets faced various challenges, including a flood of new supply. Looking ahead, residential sales on the Mainland are likely to decline, while growth in home prices in first and second-tier cities will slow down this year. Abundant upcoming Grade-A office and shopping mall supply on the Mainland is expected to suppress rental growth and push up vacancy rates in major cities.
In Q4, the launch of three new Grade-A office buildings in Beijing resulted in a higher vacancy rate and lower rentals. Shanghai also saw a huge amount of new office space come onto the market. This, combined with a slowdown in domestic economic growth, has suppressed corporate expansion activities, adding to the rising vacancy. In Guangzhou, two new buildings, namely the East Tower (also known as Chow Tai Fook International Finance Centre), the tallest skyscraper in the city, and Kai Wah International Centre, were completed, providing an additional 320,000 sqm of space in aggregate. With almost all new office space having come up in Pearl River New City, the leasing market remained active. Despite slight uptick in vacancy, rents remained mostly stable with a small increase.
In Hong Kong, the leasing market remained lukewarm on Hong Kong Island, limited by the lack of available space. The Kowloon market, in contrast, remained active, driven by strong relocation demand from Hong Kong Island.
Taipei recorded an increase in the supply of office space, leading to more room for rental bargains. But in general, the rental market remained stable, with sizable absorption of prime offices. The vacancy rate declined by 1.9 percentage points quarter-on-quarter (Q-o-Q) and rents dropped slightly by 0.4% Q-o-Q.
The Beijing municipal government released the latest market cooling policies at the end of September. As a result, the city’s residential market started to cool down at the beginning of Q4. New-home transaction volume fell and the growth in prices slowed. Likewise in Shanghai in November, the Shanghai Housing Construction Committee announced new cooling measures, resulting in a drop in luxury residential transaction volume. In Guangzhou, despite a Q-o-Q decrease in transaction volume, however in the land market, a number of “Land King” transactions were recorded, driving up expectations of further price rises. Hence, residential prices rose significantly in 4Q.
In early November, the Hong Kong government substantially raised the Double Stamp Duty rate for residential properties to a standardised 15%, leading to a significant reduction in residential sales in the following month. This policy has had a greater impact on mass secondary sales than on super-luxury and primary sales.
In Taipei, heavy taxes and mortgage restrictions reduced luxury demand, but some Taiwanese businessmen sent their capital back to the island because of the Mainland’s new rules against tax evasion.
In 2017, although we expect to see slightly stronger demand, prices should still fall about 10% while rents should remain flat.
In Q4 2016, five shopping malls opened in Beijing, all located in decentralized or suburban areas. Shanghai also experienced a high rate of mall openings, with nine retail malls opening either officially or through soft launch, providing more than 800,000 sqm of retail space. Two prime shopping centres opened in Guangzhou, namely Jiedeng Plaza, located in the central area of Yuexiu District, and Tianhui Plaza, located in Pearl River New City, bringing 140,000 sqm of new space to the market.
Hong Kong’s retail sales value and visitor arrival figures improved towards the end of 2016. The market is expected to bottom in the first half of 2017 and remain steady for a period of 9-12 months. With fewer Mainland visitors and booming e-commerce, Taipei’s conventional retail industry did not record significant growth in the traditional peak season. Retail demand for traditional street shops weakened, with only food and beverage retailers continuing to expand. Despite this, in 2017, rents should remain firm while rental yields are likely to rise slightly.
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