Bank freeze leads to tight luxury supply

BEIJING residential property projects, funded by mainland backers, have been frozen because of bank moves to recall unauthorised loans.

This action could result in a shortage of luxury accommodation, which is suitable for short-term expatriate use.

Colliers Jardine head of research Paul Burke said prospective foreign tenants were becoming increasingly frustrated at the lack of suitable apartments, particularly three-bedroom family accommodation, in the centre of Beijing.

Mr Burke said Beijing authorities recognised that the shortage of residential accommodation for expatriates might be a hindrance to investment in the city and were taking some action.

''Authorities are presently undertaking a survey, which has yet to be released, to officially ascertain the present and future accommodation requirements of expatriates in Beijing,'' he said.

The recent austerity programme has slowed or stopped several existing or planned luxury accommodation projects in Beijing in a bid to curb speculative activity.

But the regulations have also tied the hands of local developers to meet the increasing demand for new luxury residential apartments in the city.

Colliers Jardine believes this could offer an opening for foreign investors to enter the Beijing market.

Mr Burke said the austerity drive had been aimed at driving out domestic speculative activity while still encouraging foreign investment.

''Projects are being frozen as banks recall funds and this will create new opportunities for foreign investors and developers in both residential, commercial and mixed-use projects in Beijing,'' he said.

''There is an interest in attracting overseas investment for these kinds of projects.'' Property activity to date has tended to be highly speculative but new regulations should ensure development would be carried out in an orderly and regulated fashion.

Mr Burke said most expatriates preferred to live in a mixed-use development close to the Chaoyang business district as commuting from villa developments in outlying districts was becoming increasingly difficult because of heavy traffic.

According to Colliers Jardine research, there are only seven purpose-built luxury Grade A residential complexes in Beijing, with units sizes varying from 40 to 210 square metres.

Rental levels in August equate to about US$40 to $45 per sq m per month or $4,000 to $4,500 per month for a typical two-bedroom apartment and $6,000 to $6,700 for three bedrooms.

Mr Burke said vacancy rates were marginal in most popular developments and long waiting lists of more than 100 people existed in both the Lido and China World Trade Centre.

Tenants were resorting to living in hotel rooms or moving out to peripheral locations of Beijing such as the Asian Games Village, located near the Continental Hotel.

''In the absence of residential investment opportunities, the inability of developers to sell existing leased-out units and the continued influx from overseas companies, meant rents can only move upwards,'' he said.

Residential rents are expected to increase by about 15 per cent by August next year, which would show a rise of between $4,600 and $5,175 for a three-bedroom apartment.

Mr Burke said a further 10 to 15 per cent rise could be conservatively expected in 1995 as strict curbs on the development of luxury accommodation had kept supply limited.

He said these rental rises would be similar to those in the Grade A office market, as both types of space were often multi-functional.

Some local developers of prime luxury accommodation would welcome the opportunity to sell residential apartments to foreigners and recover their funds despite positive cash flows, but government policy did not allow them to do so.