28 Nov 2017
Greater China Quarterly Property Market Report 2017 Q3
House Prices Remain Resilient Despite Policy Restrictions Across The Board
In Q3, office supply pipeline directly impacted rental levels in most of the key cities. A shortage in supply in core areas coupled with strong demand will inevitably drive up rents such is the case of Hong Kong’s Central. In the luxury residential market, heavy pressure from the government has reduced transactions but high prices in key cities remain. Even with wide-spread e-commerce physical shopping has in many ways found its place among consumers. This has supported stable growth of shopping malls in these cities.
In Beijing, the newly launched Hengyi Tower has pushed up both supply and vacancy, while slightly reduced rents. The Shanghai office rent esp Puxi’s are trending slightly downwards while vacancy increased. There was no new supply in Guangzhou with existing stock being taken up and rent slightly increasing. In Hong Kong, strong demand and limited prime office supply has driven up Central office rents, but pressure remained on the Kowloon office rents due to large upcoming supply. In Taipei, Grade-A office rent dropped 0.4% quarter-on-quarter. The vacancy was up slightly by 0.7% to 8.7%, mainly due to high volume of office space released. Grade-A office vacancy in Beijing will keep increasing in Q4 while rents will continue to adjust as the landlords try to accelerate absorptions. In the next 12 months, Shanghai will see ample new supply bringing pressure to the rebound process of overall rental. In the coming 6 to 12 months, there will be limited new office supply in Guangzhou helping both take-up and rental growth. In Hong Kong, rental gap between core and non-core areas will widen in the remainder of the year. In Taipei, there will be more supply of Grade-A office in the coming year bringing up overall vacancy to over 10%.
The Beijing luxury market did poorly during the traditional peak season starting from September due to government restrictions. Transaction volume stayed flat although prices went up in Q3. Both Shanghai’s luxury transaction and prices declined in Q3, with buyers adopting a wait-and-see attitude. Since Q2, the Guangzhou government has tightened control measures causing luxury transaction volume to shrink although prices mildly increased. In Hong Kong, primary sales continued to dominate market sentiment last quarter, despite some potential first-time buyers awaiting new housing measures in the Policy Address. In Taipei, upbeat investment sentiment is sustaining the demand for the luxury homes. We expect the Beijing’s luxury residential market to regain momentum in Q4 while demand remains stable. Stringent regulations in Shanghai and Guangzhou are deterring buyers. We expect the Shanghai luxury price to remain flat in Q4, but a 3% increase in the next 12 months. The Guangzhou residential market is expected to see low transaction volume coupled with slowly declining prices. As Hong Kong’s mortgage rates remain relatively low, a mild rate increase is not expected to have a noticeable impact on housing loan repayments in the short term. In Taipei, restrictions on luxury mortgage is likely to be re-discussed and potentially eased, creating more investment incentives for luxury homes.
Beijing’s retail market continued to grow in Q3 2017. After upgrades, some shopping malls boosted their holiday sales with higher footfall. In Shanghai, the market was active in Q3 with sales volume continued to recover. There were a few newly opened as well as newly upgraded shopping malls that drove up rents. Three shopping malls opened in Guangzhou, with total new supply of approximately 300,000 sqm. Overall vacancy remained at a low level and overall rent remained stable. The Hong Kong retail sales value has been growing seven months in a row. The monthly retail sales of HK$35 billion has boosted market confidence. In Taipei, there were an influx of international retail brands, significantly reducing vacancy and boosting rents. Beijing’s retail market is expected to be stable in the coming 12 months. Strict development regulations will drive new retail projects to non-core or suburban areas. In Shanghai, newly upgraded shopping malls will cause rents to increase steadily in the coming year, growing 3-5% over the year, while the overall vacancy will lower to approximately 8%. The large supply of shopping malls in Guangzhou in the coming 12 months will add pressure to retail rents. With the resurgence of sales of high-end products, Hong Kong’s retail market is expected to continue on the road to recovery. In Taipei, East District will remain the benchmark commercial area due to its irreplaceable transport links and location.
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