China Real Estate Report Q4 2010.pdf

q4 2010 real estate report issn 2040-7548 published by business monitor international ltd. china includes 5-year forecasts to 2014 business monitor international mermaid house, 2 puddle dock, london, ec4v 3ds, uk tel: +44 (0) 20 7248 0468 fax: +44 (0) 20 7248 0467 email: web: 2010 business monitor international. all rights reserved. all information contained in this publication is copyrighted in the name of business monitor international, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. disclaimer all information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. however, in view of the natural scope for human and/or mechanical error, either at source or during production, business monitor international accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. all information is provided without warranty, and business monitor international makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. china real estate report q4 2010 includes 5-year forecasts to 2014 part of bmis industry report the culture of guanxi, or connections, helps maintain corruption in the system, making it difficult for foreign companies to compete with local firms. ! official statistics probably show the residential real estate market as having been stronger than it really was. the slump in the fortunes of many multinational companies has been an issue for owners and developers of high-end properties in beijing, shanghai and other major cities. so too has been the wave of bankruptcies of smaller exporters/manufacturers in the pearl river delta and the yangtze river delta. the markets of guangzhou and shenzhen have also had to adjust to a more conservative approach on the part of investors from hong kong, and also elsewhere. opportunities ! the governments programme to promote the availability and affordability of low-cost housing represents a huge subsidy to poorer households but also to developers. ! the rally in the chinese stock markets since the beginning of 2010 may mark a major turn: if this is the case, developers and construction companies will be able to raise significant sums from stock market investors at some stage in the next two years. ! scale of real estate market will provide an attractive opportunity to foreign institutional investors (such as real estate investment trusts) over the next few years. threats ! the main threats to the industry are political, economic and social. millions of internal migrants from rural and township areas that work in construction in the big cities may create unrest due to poor working conditions. the communist regime is not guaranteed in the long term, although the governments development programmes have driven growth in infrastructure spending. ! although china has been opening up to the world since 1979, there is no guarantee that access will get easier for foreign firms if the government decides to protect its domestic industries from global competitive pressures. ! shortages of labour and material could become a challenge for the construction industry. china real estate report q4 2010 business monitor international ltd page 8 china economic swot strengths ! the fastest growing major economy in the world, which has lifted hundreds of millions of people out of poverty over the past generation. ! massive trade surplus and us$1.9trn of foreign exchange reserves cushion against external shocks. ! chinas policymakers are committed to continuing their gradual reform of the economy. weaknesses ! chinas economy has been growing too fast for its own good. this has led to major imbalances and environmental degradation. ! chinas dependency on exports to boost growth has made it vulnerable to the global recession. private consumption remains weak, at less than 40% of gdp. ! the close relations between provincial leaders and local businesses are fostering corruption, and are making it harder for the central government to enforce its policies. opportunities ! economic growth is becoming more broad-based, with domestic consumption likely to rise in importance vis-vis exports, thanks to a middle class of 200-300mn people. ! ongoing urbanisation will be a major driver of growth, and new cities will emerge in the less-developed inland provinces. the un forecasts chinas urban population rising from 40% in 2005 to 73% in 2050, a gain of 500mn people. ! as china moves up the value chain, it will develop its own global brand name companies, fostering innovation and growth. threats ! there are fears that the global recession of 2008-2010 will mean an end to chinas double-digit growth rate. ! despite a halt to the appreciation of the yuan, the recession is leading to job losses in chinas export sector, and thus increasing social instability. ! relatively high food price inflation could become structural, as farmland is lost to industry or pollution, and farmers migrate to cities. china business environment swot strengths ! china is continuing to open up various sectors of its economy to foreign investment. ! with its vast supply of cheap labour, the country is the top destination for foreign direct investment (fdi) in the developing world. weaknesses ! foreign companies complain about the poor protection of intellectual property. ! chinese corporate governance is weak and non-transparent by western standards. there is a considerable risk for foreign companies in choosing the right local partner. opportunities ! urbanisation and infrastructure drive will provide opportunities for foreign investment in the landlocked provinces, and the transfer of skills and know-how. ! the government is giving more protection and encouragement to the private sector, the most dynamic in the economy and accounts for most of the countrys job growth. threats ! the state will block attempts by foreign firms to takeover assets of national importance. ! rising labour costs, prompting some investors to turn to cheaper destinations. china real estate report q4 2010 business monitor international ltd page 9 regional real estate overview table: asia pacifics office markets at a glance rents, 2009-2011 (us$ per square metre per month) 2009 mid-2010 2011f yield, % australia min- imum max- imum % change y-o-y min- imum max- imum % change y-o-y trend % change y-o-y 2008 2009 2010f brisbane 33.1 46.3 -28 33.3 48.3 4 same 0 6-8 8-9 8-9 melbourne 13.3 39.7 same 14.2 41.7 5 increase 2-3 6-7 6-7 6-7 perth 23.2 46.3 -30 24.2 48.3 4 increase 2-3 5 6-7 6-7 sydney 13.3 22.5 same 14.2 23.3 4 same 0 6.5-8 6.5-8 6.5-8 china beijing 14.6 26.4 10-15 14.6 27.8 6 increase 5-10 8 9 9 shanghai 24.2 48.3 -7-12 26.4 48.3 0 increase 5-7 5 6 6 shenzhen 14.6 29.3 na 14.6 29.3 0 same 0 na na 5-6 hong kong 23.5 117.3 -20 23.5 117.3 0 increase 8-10 2-3 2-3 3-4 hong kong bangalore 8.0 14.8 -30-40 8.1 15.1 2 same 0 6-7 6-12 6-12 chennai 2.7 13.7 -15-25 16.0 13.9 2 increase 3-5 8.5- 11.3 7-12 7-12 gurgaon 15.9 34.2 -15 16.2 34.8 2 same 0 4 4 4 hyderabad 11.4 27.3 -10 9.4 25.9 -5 increase 5-10 5 6 6 mumbai 22.8 91.1 -10-30 18.8 92.7 2 increase 5-10 5-7 7-9 7-9 indonesia bali 6.0 13.0 15-20 6.6 15.0 15 increase 5-10 8 8 8 bandung 10.0 20.0 15-20 10.5 21.0 5 increase 5-10 10-11 8-10 8-10 jakarta 10.0 50.0 10 10.5 52.5 5 increase 5-10 7.7- 10 7 7 japan osaka 34.0 100.0 -10-20 34.0 90.0 -10 same 0 4-5 5-6 6-8 tokyo 67.0 167.0 -20-30 67.0 167.0 0 same 0 3.5- 4.6 5-6 5-6 yokohama 11.0 33.5 -20-30 11.0 33.5 0 same 0 10 8-9 8-10 malaysia johor bahru 4.6 12.2 same 6.5 13.1 7 increase 2-5 9 5.4-7.6 7-8 kota kinabalu 6.1 15.3 -10-40 9.8 22.9 50 same 0 6-7.5 7-8 12-14 china real estate report q4 2010 business monitor international ltd page 10 table: asia pacifics office markets at a glance rents, 2009-2011 (us$ per square metre per month) 2009 mid-2010 2011f yield, % kuala lumpur 7.6 30.6 same 9.8 32.7 7 increase 2-5 6 5 7-8 pakistan islamabad 5.3 39.5 -10-20 6.1 24.4 -38 same 0 5-6 7 7 karachi 13.2 42.2 -20-25 12.2 24.4 -42 same 0 5.2- 6.5 5.2-6.5 5.2-6.5 lahore 7.9 11.9 -20-35 7.9 11.2 -5 increase 5-10 6 6 7 philippines cebu city 6.5 17.3 -22 6.8 18.2 5 increase 5-10 14 14 14 makati city 16.3 19.5 -18 17.3 20.5 5 increase 5-10 6.5-8 12-15 12-15 manila 7.4 21.7 -29 7.6 23.8 10 increase 5-10 7.5-9 5.5-6.5 5.5-6.5 singapore city 22.3 163.3 3-15 15.3 114.5 -30 increase 3-5 9 9 5-6 south korea busan 25.0 40.0 -15-20 25.0 40.0 0 same 0 2 3 3 daegu 17.6 35.2 -10 17.6 35.2 0 same 0 7 7 7 seoul 30.0 200.0 -(-3 30.0 200.0 0 same 0 6 5 5-6 taiwan taipei 20.0 40.0 -25 20.5 41.0 2 increase 5 8-10 9-12 9-12 thailand bangkok 8.7 23.3 8-10 7.7 24.5 5 increase 5-10 5 5 5-6 pattaya- chonburi 2.9 8.7 -10-20 3.1 9.2 5 increase 5-10 6 6 6 rayong 2.9 8.7 5-7 3.1 9.2 5 increase 5-10 4 5 5 vietnam da nang 10.0 19.0 -10-20 10.0 25.0 32 increase 5-10 6-9 7-8 12-14 hanoi 15.0 40.0 -30 10.0 40.0 0 same 0 7-9 6-9 10-14 ho chi minh city (saigon) 15.0 70.0 -25-30 15.5 73.5 5 increase 5-10 8-9 6-8 6-8 f = forecast; na = not available. source: bmi china real estate report q4 2010 business monitor international ltd page 11 table: asia pacifics retail markets at a glance rents, 2009-2011 (us$ per square metre per month) city 2009 mid-2010 2011f yield, % australia min- imum max- imum % change y-o-y min- imum max- imum % change y-o-y trend % change y-o-y 2008 2009 2010f brisbane 52.9 158.7 -20 55.8 166.7 5 same 0 5-6 6-7 6-7 melbourne 39.7 79.4 same 41.7 83.3 5 increase 2-3 6-7 6-7 6-7 perth 12.2 16.5 -10 12.5 17.5 6 increase 2-3 9-10 7-8 7-8 sydney 13.3 23.2 same 13.3 24.2 4 same 0 6-8 6-8 6-8 china beijing 22.0 73.2 3-5 22.0 73.2 0 increase 5-10 5-6 6-7 6-7 shanghai 35.1 65.9 -7-12 35.1 65.9 0 increase 5-7 3 4 4 shenzhen 22.0 43.9 na 22.0 43.9 0 same 0 na na 5-6 wuhan 14.6 36.6 1-3 14.6 36.6 0 same 0 7 6-7 6-7 hong kong 37.3 745.1 10 37.2 745.1 0 increase 8-10 2-3 2-3.5 3-7 india bangalore 18.2 91.1 -30-40 18.6 92.8 2 same 0 6-7 79.6 79.6 chennai 11.4 27.3 -15 11.9 28.7 5 increase 5 11 11 11 gurgaon 22.8 57.0 -15 23.2 58.0 2 same 0 5 5 5 hyderabad 22.8 27.3 -10 22.4 27.1 -1 increase 5-10 5 6 6 mumbai 34.2 79.7 -20-30 23.5 94.1 18 increase 5-10 9-12 7.5-8 7.5-8 indonesia bali 5.0 10.0 15-20 6.0 12.0 20 increase 5-10 7-10 7-10 7-10 bandung 10.0 35.0 30 10.5 38.5 10 increase 5-10 13 16 16 jakarta 25.0 145.0 20-30 26.3 159.5 10 increase 5-10 9 11 11 japan osaka 84.0 167.0 -15-20 75.0 167.0 0 same 0 4-6 6-8 6-8 tokyo 330.0 1500 -50 330.0 1500 0 same 0 2-4 6-9 6-9 yokohama 33.2 55.4 -20-30 30.0 54.0 -3 same 0 10 8-9 8-9 malaysia johor bahru 3.1 61.2 same 6.5 45.8 -25 increase 2-5 9 5.4- 7.6 7-8 kota kinabalu 6.1 61.2 -10-40 16.4 39.3 -36 same 0 6-7.5 7-8 12-14 kuala lumpur 12.2 30.6 same 16.4 49.1 60 increase 2-5 6 5 6-8 pakistan china real estate report q4 2010 business monitor international ltd page 12 table: asia pacifics retail markets at a glance rents, 2009-2011 (us$ per square metre per month) city 2009 mid-2010 2011f yield, % islamabad 19.8 65.9 -10-20 24.4 61.0 -7 same 0 5-6 7 7 karachi 13.2 42.2 -20-25 18.3 30.5 -28 same 0 5.1- 6.5 5.1- 6.5 5.1-6.5 lahore 7.9 11.9 -20-35 7.3 10.7 -9 increase 5-10 6 6 7 philippines cebu city 4.3 26.0 -14 4.5 27.2 5 increase 5-10 10- 14 14-20 14-20 makati city 28.2 32.5 -12 29.2 32.4 0 increase 5-10 10- 14 7-10 7-10 manila 17.3 21.7 -17 17.3 21.6 0 increase 5-10 7.5-9 7.5-10 7.5-10 singapore city 33.4 111.3 3-6 34.4 152.7 37 increase 3-5 4.0- 4.4 5-6 8-9 south korea busan 30.0 55.0 -15-20 28.5 52.0 -5 same 0 3 5-8 5-8 daegu 25.0 50.0 -10 24.0 47.5 -5 same 0 7-8 6-7 6-7 seoul 60.0 400.0 -2-3 57.0 380.0 -5 same 0 7 5 5 taiwan taipei 35.0 70.0 -25 36.0 72.0 3 increase 5 8-10 9-12 9-12 thailand bangkok 4.7 11.7 8-10 6.1 15.3 31 increase 5-10 5 6 6-6.5 pattaya- chonburi 4.4 7.3 -10-20 4.6 7.7 5 increase 5-10 6 6 6 rayong 5.8 8.7 5-7 6.1 9.2 5 increase 5-10 3 4 4 vietnam da nang 25.0 40.0 -10-20 15.0 40.0 0 increase 5-10 5-8 6-9 6-8 hanoi 20.0 50.0 -10-20 20.0 50.0 0 same 0 7-11 8-10 6-8 ho chi minh city (saigon) 50.0 120.0 -25-30 35.0 126.0 5 increase 5-10 7-9 8-10 8-10 f = forecast; na = not available. source: bmi china real estate report q4 2010 business monitor international ltd page 13 table: asia pacifics industrial markets at a glance rents, 2009-2011 (us$ per square metre per month) 2009 mid-2010 2011f yield, % australia min- imum max- imum % change y-o-y min- imum max- imum % change y-o-y trend % change y-o-y 2008 2009 2010f brisbane 5.3 7.3 10 5.0 7.5 3 same 0 8-9 7-8 7-8 melbourne 4.6 9.9 same 5.0 10.0 1 increase 2-3 6-9 6-9 6-9 perth 4.3 6.0 -5 4.6 6.3 5 increase 2-3 7-8 7-8 7-8 sydney 8.6 14.5 same 9.2 13.3 -8 same 0 6.5-7 6.5-7 6-8 china beijing 3.7 13.2 3-5 3.7 13.2 0 increase 5-10 5-6 6-7 6-7 shanghai 3.1 4.4 -15-20 3.5 5.3 20 increase 5-7 7 7 7 shenzhen 2.9 4.4 na 2.9 4.4 0 same 0 na na 5-6 wuhan 1.5 3.7 1-3 1.5 3.7 0 same 0 5 6 6 hong kong 2.8 18.6 10 2.8 18.6 0 increase 8-10 7-10 7-9 3-5 india bangalore 3.4 4.6 -30-40 3.5 4.6 2 same 0 3.6-6 6-7 6-7 chennai 2.7 4.6 -15-25 2.8 4.8 5 increase 5 10 10 10 gurgaon 6.8 13.7 -15 7.0 13.9 2 same 0 5 5 5 hyderabad 1.4 2.3 5 0.9 2.1 -7 increase 5-10 6 7 7 mumbai 11.4 18.2 -20-30 11.5 17.7 -3 increase 5-10 10-12 12-15 12-15 indonesia bali 0.4 0.8 20 0.4 0.8 3 increase 5-10 8-12 6-12 6-12 bandung 0.3 0.6 10 0.3 0.6 3 increase 5-10 7 8 8 jakarta 0.8 0.8 24 0.8 0.8 3 increase 5-10 11 13 13 japan osaka 4.0 6.5 -10-20 4.0 6.5 0 same 0 3-5 4-7 4-7 tokyo 13.0 33.0 -10-20 13.0 33.0 0 same 0 4-6 3-5 3-5 yokohama 3.3 5.5 -20-30 3.3 5.5 0 same 0 9 7-9 7-9 malaysia johor bahru 2.3 12.2 same 2.3 13.1 7 increase 2-5 9 5.4- 7.6 6-8 kota kinabalu 3.1 9.2 -10-40 3.9 9.8 7 same 0 6-7.5 7-8 10-12 kuala lumpur 3.1 21.4 same 6.5 9.8 -54 increase 2-5 6 5 6-7 pakistan islamabad 2.0 7.9 -10-20 1.8 4.9 -38 same 0 5-6 7 7 china real estate report q4 2010 business monitor international ltd page 14 table: asia pacifics industrial markets at a glance rents, 2009-2011 (us$ per square metre per month) 2009 mid-2010 2011f yield, % karachi 4.7 8.6 -20-25 4.3 6.1 -29 same 0 2 2 2 lahore 4.3 7.9 -20-35 3.9 7.6 -4 increase 5-10 4-5 4-5 4-5 philippines cebu city 2.2 3.3 -57 2.3 3.4 5 increase 5-10 5 5 5 makati city 4.3 6.5 na 4.5 6.9 6 increase 5-10 na 5-6 5-6 manila 2.2 3.3 -57 2.6 3.8 16 increase 5-10 6 5-6.5 5-6.5 singapore city 7.4 29.7 3-6 7.6 30.5 3 increase 3-5 2 3-4 3-4 south korea busan 5.0 7.0 -15-20 5.0 7.0 0 same 0 7-8 8-10 8-10 daegu 4.0 5.0 -10 4.0 5.0 0 same 0 6-8 5-7 5-7 seoul 10.0 20.0 -2-3 10.0 20.0 0 same 0 11 10 10 taiwan taipei 4.0 14.0 -25 4.1 14.5 4 increase 5 7-9 8-10 8-10 thailand bangkok 3.5 7.3 8-10 3.7 6.1 -16 increase 5-10 5 5 4-5 pattaya- chonburi 1.5 2.0 -10-20 1.5 2.1 5 increase 5-10 6 6 6 rayong 2.9 5.8 5-7 3.1 6.1 5 increase 5-10 4 5 5 vietnam da nang 5.0 10.0 -10-20 3.0 10.0 0 increase 5-10 6-8 7-9 10-14 hanoi 4.0 7.0 -10-20 3.0 10.0 43 same 0 8-9 7-9 10-14 ho chi minh city (saigon) 5.0 8.0 -25-30 5.3 8.5 6 increase 5-10 7-9 8-9 8-9 f = forecast; na = not available. source: bmi china real estate report q4 2010 business monitor international ltd page 15 real estate market overview key issues over the long term chinese government policy has emphasised real estate development as an important source of the economic growth that it has sought for political reasons. unlike their counterparts in hong kong, the mainland chinese authorities have not been able to prevent a speculative building boom, in beijing, shanghai and many other cities, which has resulted in a glut of both residential and commercial property. because of the ongoing growth in the economy, and the general migration of people to the cities from rural china, rents have generally held up quite well. (shanghais industrial sub-sector is the main exception to this.) however, capital values have begun to slide. in most countries the fortunes of the commercial property sector are driven by developments in the overall economy. in china the process works the other way around. real gdp growth in q110 was 11.9%, indicating that the economy is overheating, again, and that a tightening of policy is necessary. in the event that growth does not slow in q210 and q310, we will revise our overall forecast for economic growth for the year as a whole upwards from 8.8%, but at the expense of growth in 2011 and 2012. the bulk of growth in q110 came from gross fixed capital formation, which contributed 6.9 percentage points (pp) to the headline figure. this seems like a continuation of the fixed asset investment (fai)- driven growth seen earlier, with real estate activity becoming an increasingly dominant driver of the economy. indeed, real estate fixed asset investment spending grew by a staggering 35.1% year-on-year (y-o-y) on a cumulative basis in q110. meanwhile, total fixed asset investment came in at just 26.4% y-o- y. we believe resources are being increasingly diverted into the property sector at the expense of other activities, as real estate prices continue to soar. we have heard evidence of local governments (which were responsible for the bulk of the infrastructure investment boom in h209) acquiring funds from banks to fund infrastructure projects, yet channelling the money into property development. comments and data from in-country sources the comments fro