Beijing property goes for Olympic gold

For Beijing property agent Yang Hui, the start of the official countdown to the 2008 Olympic Games means longer days and a heavier workload. Not that Mr Yang is complaining. Since January this year, he has been chalking up more transactions in the rental and sale markets as demand jumps. Topping his agenda will be a search for 40 flats near the main Olympic Stadium to provide offices and accommodation for the staff of a US media organisation covering the games. But even as Mr Yang works up a sweat in the pre-Olympic property frenzy, doubts are already emerging about whether the gains are sustainable. Indeed, some are saying Beijing will suffer the same post-Olympic syndrome that has hit other host cities, with the likely symptoms a slowing economy and a property downturn. Given that some analysts are saying the mainland property market is already in a bubble, concerns about a post-games bust has more meaning. Mr Yang, the manager of Beijing Centaline Property Consultants' Yaaofenglinluzhou branch in Datun Road, is within a 15-minute walk of the Olympic Stadium, dubbed the 'Bird's Nest' because of its strikingly strange grid formation. But his search for properties is a trying one. Riding on the Olympic boom, some landlords have raised the asking average rent 10 times more than normal. Complicating his efforts is the fact that most flat owners have yet to decide what rents to charge. 'Owners are arguing among themselves about the top rents they may command. Some say rents should increase five times, others say 10 times,' he said. Increases of that magnitude would mean that the current monthly rate of 6,000 yuan for a 140 square metre flat near the Olympic Village would rocket to 60,000 yuan. 'Even at those levels, it will still be cheaper than staying in a hotel,' said Mr Yang, adding his work had become more competitive with flats hunters approaching owners directly. Beijing Centaline is one of the five agents recommended by the city government to help foreign media groups lease housing and offices during the games, which will begin on August 8. In addition to the buoyant leasing market, the Olympic Village area is eagerly sought by homebuyers because of its accessibility. That received a big boost after the new public railway, Metro No5, began operating on October 7. To capitalise on the area's rising secondary market transactions, Centaline opened its branch in February. It hopes to expand its office network in Beijing to 100 outlets by the end of this year from 60. Since construction began on the Olympic subway line extension in late 2002, home prices in Datun have jumped 150 per cent to about 15,000 yuan per square metre. 'Before the development of the Olympic Village, there was no secondary market in the area. Now, property prices rise 4 to 5 per cent every month,' said Alan Ngok, residential director for North China at DTZ. And surging property prices have not been confined to Datun. Beijing house prices have risen in the seven-year run-up to the games, mirroring a phenomenon seen in previous Olympic host cities such as Barcelona, Atlanta, Sydney and Athens. Unfortunately, this upward trend became unsustainable after the Olympic flame was extinguished. Barcelona suffered a recession after the 1992 event, while Montreal built up substantial debt in 1976 and so did Athens in 2004. Nobel economics laureate and 'Father of the Euro' Robert Mundell last year warned the mainland to be wary of Olympic economic bubbles and to avoid the backlash of a post-Olympic slump. The central government-controlled Beijing Olympics Economic Research Institute sounded a similar warning in June, forecasting home prices in the city were likely to fall after the Olympics. 'The property market has been overly optimistic in [assessing] the positive impact of the Olympic Games,' it said in an 85-page report on the games. Andrew Ness, the executive director of CB Richard Ellis' research department, is more bullish on the outlook. 'The positive influence of the Olympics on the housing market is evident in Beijing,' Mr Ness said. 'There are no particular signs of an Olympic-inspired bubble forming in the residential market.' In the five-year run-up to the Olympics in Barcelona, Atlanta, Sydney and Athens, home prices rose between 19 per cent and 131 per cent. That compares with Beijing's 56 per cent gain over the past five years. Mr Ness said gains over the past two years were mainly due to increased demand after steady growth in the domestic economy. 'Beijing's housing market has also been stimulated by the continuous appreciation of the yuan since 2005, prompting many domestic and overseas occupiers and investors to secure residential units in the capital,' said Mr Ness. According to the National Bureau of Statistics, completed property investment in the first eight months of this year jumped 29 per cent from a year ago to 1.43 trillion yuan. As the mainland is transforming from a planned to a market economy, Beijing, unlike other former host cities, has taken measures to streamline the flow of 'hot money' that would fuel speculation. Central policymakers are wary of an overheated property sector and are trying to depress stubbornly rising prices. The National Development and Reform Commission last month urged local governments of cities experiencing rapid property inflation to enforce 'stringent regulations and instructions'. The measures included requiring anyone buying a second flat to deposit 40 per cent of its value, up from 30 per cent; higher property tax and restrictions on foreign property investment. To address housing demand among low-income groups, the commission proposed increasing the supply of residential land. 'This will be a critical period to cool the overheating property market,' the commission said. '[There is a] need to step up enforcement of existing measures to stabilise residential prices.' Annual property price inflation in 70 major cities accelerated to 8.2 per cent in August, with Shenzhen registering 20.8 per cent growth and Beijing 12.1 per cent. Yet, Centaline China director Dickson Wong Hung expects residential prices in Beijing to continue to climb between 10 per cent and 20 per cent next year. He said, for instance, properties at the Beijing Yintai Centre, a luxury residential, office, retail and hotel development in the central business district, rose 20 per cent in the first eight months of the year, selling for a record 70,000 yuan per square metre. Mr Ngok said the mainland's strong economic performance, fuelled by the buoyant domestic stock market, should sustain price growth and demand. 'Property prices in Beijing are still lower than similar projects in Shanghai and Shenzhen,' he said. Flush with surplus capital and having limited investment channels, many mainland investors and overseas institutions are betting on a stronger yuan and viewing property as a long-term investment. With the government pouring 280 billion yuan to improve the city's infrastructure as well as the usual international investment that Olympic venues had attracted, Mr Ngok said buying sentiment was likely to continue. But not all analysts are so rosy about post-Olympic prospects. Beijing's hospitality industry is likely to suffer from a short-term oversupply after the games. By next year, the number of hotel rooms in the city will have risen to 130,000, while some 4.4 million square metres of retail space is due to open when the games start. 'A glut of hotels, serviced apartments and retail shops in Beijing after the Olympic Games to a certain extent will be inevitable,' said Liao Qun, a senior vice-president and chief economist and strategist at Citic Ka Wah Bank. However, Norman Chan, general manager of Swire Properties' Sanlitun project, said the developer's view of the retail market for the long term was positive. 'We think demand for shops will be sustained after the Olympic Games. It is a catalyst to stimulate investment,' he said. Retailers, particularly those selling sports-related goods, are also bullish. Nike has opened its 12,000 square foot first flagship store in Beijing. Adidas has followed, renting 3,000 square metres of space at Swire's Sanlitun project. With Beijing preparing to be in the world spotlight during the 2008 Olympic Games, it seems to be assured of a flawless performance. But whether the post-games period will be a medal winner as well remains to be seen.