Rapid urbanization as well as robust demand for homes will
continue to boost the country's real estate industry in 2008,
industry analysts said.
Wei Bo, a property analyst with Central China Securities
Company, sees three main factors as being responsible for the
strong demand.
"New demand from the country's urbanization progress, growing
requirement for larger and better homes among the Chinese, as well
as rising investments caused by the appreciation of the Chinese
currency and the existing negative interest rates, will probably
help the real estate industry's fortune for another year," Wei
said.
"We expect the industry to maintain its high pace of development
and give it a 'better than broad market' rating."
China is seeing probably one of the largest urbanization in the
world. According to an earlier forecast by the United Nations,
between 16 million and 22 million people will migrate from rural
places to urban areas in the country each year from now to 2020.
The total urban population will rise by 300 million at that time,
which means an additional six billion square meters of housing will
be needed.
Meanwhile, growing disposable income among the Chinese will
further boost demand for new homes across the country.
In the first nine months of this year, disposable income for
city dwellers expanded 13.2 percent to 10,346 yuan (US$1,398) and
earnings for rural households rose 14.8 percent to 3,321 yuan,
after being adjusted for rises in the consumer price index, the
National Bureau of Statistics said in November.
The appreciating Chinese currency, which has so far gained about
10 percent since the yuan was depegged from the US dollar in July
2005, has been attracting speculative funds from overseas to invest
in the country's property market.
For example, in Shanghai alone, the total value of en-bloc
building acquisitions made during the first six months of this year
has already reached 63 percent of 2006's total, according to an
earlier report by Jones Lang LaSalle, one of the big five real
estate service providers.
Moreover, the actual negative interest rate - meaning the
one-year term deposit interest rate, after deducting inflation and
interest tax, is below zero, or negative - has propelled more
Chinese to invest in properties.
2nd-tier boom
A fundamental shift has occurred in the country's real estate
market over the past year as investors and developers are
increasingly looking toward the country's second-tier cities for
new opportunities.
While construction continues in the first-tier cities of
Shanghai, Beijing, Guangzhou and Shenzhen, the largest cities in
the vast interior of the country are also witnessing rapid
development and construction.
The residential sector has become an area of interest recently
due to burgeoning home prices and the rapid pace of infrastructure
construction.
In particular, Dalian, Chengdu and Hangzhou will in the near
term become frontrunners to continue the strong trend of healthy
residential development. Changsha, meanwhile, stands out as a
market that is ready for higher quality projects.
Liaoning Province's Dalian, which boasts the best living
environment in northeast China and is popular with South Korean and
Japanese businessmen, is witnessing continuous expansion in its
high-end residential properties whose capital values are growing
rapidly.
Similarly, Chengdu in Sichuan Province saw a 22- percent rise in
capital values between 2005 and 2006 while rents have been climbing
for the past couple of years as foreign workers follow
multinational companies into the city.
For Hangzhou, the draw is multi-faceted as it is famed for its
natural scenery and boasts an enviable location near Shanghai.
Moreover, it is the provincial capital of Zhejiang Province which
has the highest per capita disposable income in China.
Meanwhile, Changsha, capital of Hunan Province, owing to its
location between the regional hubs of Wuhan in the east and
Chongqing in the west, stands to benefit greatly as developers move
toward new markets. Prices for the city's residential properties
have already gained more than 10 percent in the first and second
quarters of this year.
Land supply
Listed real estate developers have been accelerating to expand
their land banks across the country this year, mainly in the
eastern Yangtze River delta region, the northern cities of Beijing
and Tianjin and neighboring Hebei Province as well as southern
Guangdong Province.
A recent study by China Securities Journal has found that
of 86 land acquisition announcements issued so far this year on the
country's two stock exchanges, about 70 percent are located in the
above three regions, each of which secured 29, 16 and 15 deals.
In terms of capital spent, 22 listed real estate developers have
spent a combined 38.32 billion yuan in 54 land acquisitions since
July, a significant growth rate compared to 14.71 billion yuan
spent jointly by 16 listed property developers in 32 deals in the
first half of this year.
However, for the whole of 2006, a total sum of 15.88 billion
yuan was spent in land acquisition deals by 17 listed real estate
companies.
Among the listed real estate companies, Gemdale Group, Poly Real
Estate Group Co and Tianjin Reality Development (Group) Co Ltd have
been the most aggressive developers, enlarging their land reserves
over the past five months as they contributed a combined 53.91
percent in terms of the total amount.
Specifically, Gemdale, the Chinese developer that is a partner
of ING Groep NV, has purchased seven land plots for a total of
9.024 billion yuan July. Poly, China's largest state-owned
developer, has spent 6.56 billion yuan to acquire seven land plots
while Tianjin Reality has spent a total 5.073 billion yuan for five
plots.
Nationwide, the average land prices increased 9.8 percent, 13.5
percent and 15 percent respectively in the first three quarters of
this year, according to figures released by the China Real Estate
Chamber of Commerce.
Major real estate players in China have been tapping the stock
market to raise funds to expand their portfolios across the country
as financing for property developments has been harder due to a
tighter scrutiny on such projects.
(Shanghai Daily December 25, 2007)
