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April 26, 2017

Despite 64 cities in China imposing new and stricter property buying curbs, buyers’ appetite in the country remains unabated, especially outside the Tier 1 cities. Average home prices in 70 major Chinese cities rose by 0.7 percent in March compared to February, despite purchase restrictions, and are up by 10.3 percent compared to the same month last year, according to figures released by China’s National Bureau of Statistics.

“Buying sentiment is certainly strong and prices are forecast not to decline steeply even as the restrictions sink in,” says Stuart Crow, JLL’s Head of Capital Markets in Asia Pacific. “There is still a voracious appetite for residences in Greater China although we have seen transaction volumes and price growth in Tier 1 cities slow as a direct result of some of the curbs taking effect.”

Crow adds that it is more likely that there will be plateauing of pricing across Tier 1 cities and some of the other smaller markets.” Moreover, the high land prices in China will continue to boost investor confidence as large developers acquire smaller ones, and replenish their land banks.

Boost for domestic investment

The rise in residential prices at home due to greater demand could be driven by increased scrutiny of off-shore real estate investment by the Chinese government. According to the latest Global Capital Markets research from JLL, total outbound capital from China declined 36 percent from the last quarter.

“When outbound flows reached record highs and the renminbi depreciated over 7 percent in the past year, stricter rules were imposed,” explains Dave Chiou, from JLL’s Capital Markets Research team in Asia Pacific. “For domestic companies or individuals, with limited options to choose from and limited loopholes to get around regulations, investing in China is probably the best route. This will likely push asset prices higher, resulting in further yield compression.

Investors are also moving towards the non-residential sectors in China.

“They are looking inward – office buildings, shopping centres and logistics facilities, in particular,” says Crow. We’re seeing very strong price growth, rental growth and large investment volumes in these sectors.”

Data from the Global Capitals Markets research revealed that Shanghai and Beijing take top and third spots respectively for the office supply pipeline in 2017 to 2018. Global rental growth is projected to remain at a steady pace, rising to 3.1 percent in the first quarter of 2017, an increase of 0.5 percent from final quarter 2016.

Click here to find out more about cross-border commercial real estate investment in Q1 2017

Stuart Crow
Head of Capital Markets JLL Asia Pacific

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