Investors go cool on Chongqing
Developers and investors are expected to slow their property investments in Chongqing because of the city's recent political storm, property consultancy Knight Frank said.
'In the short term, both investors and developers are likely to slow down their investments in the city due to political uncertainties,' said Thomas Lam Ho-man, head of Greater China research at Knight Frank. 'Investors will adopt a wait-and-see approach in the coming six to 12 months because of a change in state leaders.'
Chongqing has been mired in political upheaval since February when former police chief Wang Lijin reportedly fled to a US consulate on the mainland to make allegations about former Chongqing party chief Bo Xilai and seek asylum.
That was followed by Bo's downfall and the arrest of his wife Gu Kailai over the alleged murder of British businessman Neil Heywood.
'We don't see a property crash in Chongqing in the long run because it's still a very hot investment spot in China,' Lam said, adding that the province's property market is still positive and healthy.
But Lam said political risks would affect the property market. Since Chongqing had previously launched incentives for investors, a change in the province's leadership could cast doubt on policy directions.
Lam said the average price of a home in Chongqing dropped about 5 per cent in the first quarter this year. Similar to other tier-two Chinese cities, Knight Frank expects a further 10 per cent to 15 per cent price correction for the mass residential market by the end of this year, with luxury residential flats in Chongqing likely to have a 10 per cent price adjustment for the same period.
Chongqing and Shanghai are the only two Chinese cities to have introduced the nation's first- property tax for second-home buyers, a move to curb soaring property prices.
Knight Frank said property cooling measures would continue in Shanghai and Beijing, making the residential market less appealing to investors who might turn their attentions to the commercial market.
With the inventory of saleable homes in Shanghai and Beijing reaching a historical level, Knight Frank said home prices in the mass market would drop by at least 10 per cent and 5 per cent in the luxury market in the short to medium term.
Lam expects more bankruptcies, mergers and acquisitions of small and medium-sized property developers this year. Some developers are having problems selling flats because of the subdued market.
With regard to to the office market, Mark Sullivan, Knight Frank's managing director in Beijing, said the overall vacancy rate in the capital would drop to 3 per cent by the end of this year. Limited supply would cause rents in core commercial areas to surge 25 per cent this year, forcing some tenants out to other areas.
In Shanghai, some multinational companies are seeking office expansion in non-core business districts, Graham Zink, the firm's managing director for the city, said. He added that rental growth in Shanghai's central business area would be around 6 to 10 per cent this year.