Article
- Shaun Brodie, senior member of the research team, DTZ Shanghai Office
Following a particularly strong performance in the stock market in the middle of February, China's real estate sector is in the spotlight. The big real estate developers, including China Vanke Company, China Merchants Property Development Co Ltd, and the Poly Real Estate Group, soared 4 to 6 percent hike which gave market a boost.
China's real estate developers have already launched a series of promotional activities during this year's Spring Festival and Lantern Festival to cope with the gloomy residential property market. These promotional activities include lucky draws with over 10,000 Yuan discounts on new home purchases, one year free car parking and free property management.
Zhang Zushun, Property Agent: This kind of promotional sale does good to both buyers and developers. Both parties have held greater expectations previously and developers drive the price to a high point. When developers and buyers become more rational, the expectations will meet.
The Chinese government also announced several measures in October to help support the market. Has China's residential property market hit rock bottom? Can stimulus packages help bring the sinking market above water this year?
Current market
A: Joining us to talk more about the issue, Mr. Shaun Brodie, an associate director with DTZ Research Shanghai. His main role is collecting data for all property sectors in Shanghai and major second tier cities within the Yangtze River Delta Region. Thank you very much to join us.
S: Thanks very much for inviting me.
A: We appreciate it. Let’s first start by talking about the overall picture of the market right now.
S: Well, this market is really sort of obviously entering into a downturn. In terms of the residential market, we’ve seen, for example, transaction volume in Shanghai year-on-year in 2008 decreased by about 40%.
A: Is it so as bad as everyone said it was getting worse? What’s the general feeling out there right now?
S: We still probably haven’t hit the bottom. We feel that the bottom of the market could occur toward second half of 2009 with a pick-up possibly at 2010.
A: There are a lot of promotional incentives that have come up during the Spring Festival. Are there something that our strain will take off or people get interested into them or it’s gonna help. How soon I guess can we see them start to help?
S: Spring Festival 2008, we will look at some units within commercial residential properties, being on offer at around 10% discount. Now this particular unit back then would be an unfavorable position within the complex. But now we are seeing some properties that are actually s more aggressively discounted. Some of them possibly are discounted by up to around 20% in the market and these have actually sold quite well. There was one property in Zhabei District that dropped its price from around 27,000 RMB per square meter to around 18,000 RMB per square meter. Within months it sold around 200 units whereas a developer offering a 10% discount now. There was one property also quite close to that property in Zhabei District that was offering a discount of 10%. But it wasn’t as successful as the one that was discounted 20%. But we still haven’t seen the bottom of the market and buyers are still sensing this and holding back a little bit in terms of when will be the bottom of the market.
A: How was that wait-and-see approach that we’ve seen affecting the developers and the market overall?
S: We’ve already seen the transaction volume has decreased because of it. If that continues in, we could see developers possibly offering an even higher discount, possibly 30% discount right within the market later on this year.
As the real estate market weakens, Chinese property developers have become more cautious. In Shanghai, supplies of new homes have dwindled. And buyers are taking a wait-and-see approach. Shi Liang, Property Agent: The property market has been in short supply since the Spring Festival. We only got 10 apartments supply in one month in the downtown area. The number of purchasers who want to visit the home has increased, but the transaction volume remains low.
S: The developers and even the owner-occupiers, individuals who don’t occupy the market, they still want to keep the price up to see how the market is doing. But it’s cat mouse game going on between buyers, investors, developers and owners.
A: Sure, they want hopefully get more and the buyers and investors want wait to see things pay less.
S: Exactly, I just feel that obviously the bottom of the market will occur when you have this meeting point when both parties expectations meet and that’s when the bottom of market will occur.
A: Can people wait to possibly see better discounts coming from developers as well?
S: For sure, developers certainly will. They require cash flow. Much of their cash flow is generated from the sales of existing properties that they have built. If they are finding difficulties in selling these properties, they will have resort to further discounting as time goes by.
A: What about China on a global scale? How was this market doing compared to US market, Australian market, UK market?
S: I feel like we are all in the same boat. Take for example, the UK market, year-on-year we’ve seen a decline of around 17% in the UK market. Also again, in the US as well. So much so that we’ve even heard talk of buyers actually from China, some more affluent buyers looking to purchase properties in US market or the European market, just to see what sort of bargains are available elsewhere.
A: Is there any hint of who can come out of this downturn faster in terms of different countries?
S: It depends on how effective those stimulus packages are. But right now it seems that those stimulus packages are based from a national perspective. In terms of a globalised basis, I feel like there needs to be an organization that is able to coordinate all these stimulus packages. The upcoming G20 Summit in London will be a good opportunity for national governments to be able to talk about a coordination program. Once we get that, then I feel that each of the national governments will be able to coordinate stimulus policies that much better. In terms of China, for example, they always talk about China recently possibly being the country that might turn around and come out of this sort of recession more quickly than other countries. I feel China is in a quite good position or a better position than other countries because it still has quite bit money to play with that it can push forward into the economy.