Top-tier cities seen first to recover
Mainland properties that have suffered the sharpest price falls will be the first to rebound once the market begins to recover, according to property analysts.
And for cashed-up buyers aiming to enter the market and willing to hold properties until the recovery gets under way, units in prime locations in first-tier cities offer the highest upside potential, they said.
But the immediate outlook is for more declines in Beijing and Shanghai, where prices were expected to drop by a further 10 per cent or more this year, back to 2007 levels, said Meggie Qin, a director of research at property consultant CBRE.
Picking the bottom for prices in the prevailing volatile market would be challenging, but buyers looking for investment opportunities might consider entering the market in the second half of the year, Ms Qin said.
'Those looking for a flat in second-tier cities might consider residences in Dalian, Xian and Shenyang where property prices remained stable last year and local economies offer the prospect of strong growth,' she added.
Given the weight of pent-up internal demand, the long-term outlook for retail and residential markets remained positive, Ms Qin said.
However, the outlook for the office market was clouded as demand was driven by multinational companies which had been hard-hit by the global financial crisis.
Edward Cheung, the chief executive of DTZ's mainland division, echoed the projection that retail properties in first-tier cities were likely to be the first to show signs of recovery and offer the best investment returns, particularly in prime locations in Beijing and Shanghai.
The resilience of the Shanghai market was evident in the prices of new projects in the city centre, which had not been heavily discounted because of the relatively tight supply situation, Mr Cheung said.
'If you are interested in buying in Beijing or Shanghai, you should keep an eye on the secondary market for units in new projects in the city centres,' he said. 'You may find flat owners willing to lower their prices.'
He said prices for mass residential property in Shenzhen were close to the bottom after the city experienced its sharpest fall in property prices.
Despite the financial crisis, retailers of international brands had not significantly slowed their expansions plans, Mr Cheung said. As a result retail rents remained stable.
He said the same could not be said for the office market, and he predicted office rents in Beijing and Shanghai would continue declining.
Albert Lau, the managing director of Savills Shanghai, said the residential market would be the first to recover since it was the first to fall.
End-users could consider buying luxury residential units in prime locations after prices had fallen a further 15 to 20 per cent, he said.
In the mass residential market, prices in southern China would reach the bottom this year, while prices in Shanghai and Beijing might fall a further 10 per cent before hitting the bottom by the end of the year.
'But investors should not expect a V-shaped price rebound when the recovery gets under way. Prices will rise only gradually,' he said.
Greg Penn, CBRE's senior managing director of investment properties in Greater China, said the mainland market had seen a softening across all sectors with only retail and industrial office parks showing some resilience to repricing.
Mr Penn expected investors to begin returning to the market in the second quarter and added that likely targets would be markets with consistent demand from owner-occupiers and where the foreseeable supply pipeline was not excessive.
'Retail and industrial office parks are two sectors where I also expect growth,' he said.
Denis Ma, the head of research at Jones Lang LaSalle in Beijing, said the market would begin showing signs of improvement when the economy recovered in 2010.
Mr Ma said the outlook for offices in Beijing would remain poor with plentiful new supply and poor demand.