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SCMP Reporter

THE property boom that dominated the economies of China's key cities has started to subside.

  However, strong demand for office space and residences will continue as construction quotas for new foreign enterprises are met.

  China specialist Dominic Leung said property markets were still active in the main cities, but had cooled when compared with levels of 18 months ago.

  'The drop we have seen was anticipated as the supply and demand dynamics consolidate and adjust to the changing market conditions,' he said.

  'As investors see a new supply of developments in Beijing and Shanghai, there has been a natural slowing down in the number of sale and leasing transactions.

  'End-users are more selective about the developments they are signing up for - and from a business point of view, that's very sensible.

  'Even in the late 1980s, the shortage of office and residential accommodation in many parts of China forced foreign companies to rely on hotels to house expatriate staff.

  'But massive construction programmes since then have considerably eased the shortage.'   Mr Leung, who is a director of property company Richard Ellis, said office and residential developments were almost fully occupied and this had kept rents from falling.

  Last year, average Beijing office rents rose by 40 per cent.

   They are now almost US$75 per square metre.

  Sale prices for new office developments started from $2,000 per sq m in less central locations to $4,000 per sq m for quality projects in prime locations.

  A Richard Ellis spokesman said Beijing's residential rents recorded similar growth.

  Rents rose 30 per cent to an average $65 per sq m per month.

  Office rents in Shanghai are now at an all-time high. Prime sites lease for an average $72 per sq m per month.

  Flats in quality residential blocks are fetching between $30 and $55 per sq ft per month.

  A different trend has emerged in the residential market in Guangzhou province where prices for construction projects have fallen by up to 20 per cent. Colliers Jardine research shows the worst affected area has been Tianhe in east Guangzhou.

  Tianhe has been earmarked as the city's future central business district but its infrastructure and amenities are inferior to those of the existing Guangzhou city centre. Unfurnished flats in Tianhe are fetching monthly rents of between $8 and $10 per sq m.

  Pre-sale prices for prime flats in Liwan, Yuexiu and Dongshan - Guangzhou districts - are achieving $950 to $1,174 per sq m.

   Experts said well-grounded fears that there may be an oversupply of residential and office space in China's main cities in the next two years were expected to cool the market.

  But Mr Leung said several mitigating factors could offset a price downturn.

  'Most of the new supply is not expected to to be of a high standard and many projects may not be delivered on time because of a lack of finance,' he said.

  'In this environment, good-quality buildings and those with superior specifications will stand out.'   Residential and office rents in China would remain stable for the remainder of this year and, if the new influx of supply did affect the market, it was unlikely to do so until the end of 1996, he said.

  'Investors in China property must remember that, compared with Hong Kong, they are entering the market at relatively low prices and should always have a long-term view,' Mr Leung said.



Demand still strong