Advertisement
The View
Opinion
Nicholas Spiro
Nicholas Spiro

The View | China’s commercial property market is thriving even as residential property lags and the overall economy slows

  • Foreign investment drove the growth in China’s commercial property in 2018, and domestic buyers look likely to join in the trend in 2019
  • While the office and retail sectors have borne the brunt of the fallout from the government’s deleveraging campaign, demand for warehousing space is surging

Reading Time:3 minutes
Why you can trust SCMP
Workers in a TMall.com warehouse gather orders from customers in Jiangmen, Guangdong province. The combination of surging demand for high-standard warehouses from e-commerce companies, third-party logistics providers and manufacturers, coupled with a scarcity of land in major urban centres and tight land-use restrictions, has led to strong absorption of warehousing space. Photo: EPA-EFE
Nicholas Spiro
For some time now, the residential property market has topped the list of vulnerabilities in China’s economy. In the latest sign that the slowdown in the housing market is gathering momentum, data published by the National Bureau of Statistics last Friday showed that new home prices in 70 major cities tracked by the government decelerated in January for the third straight month, expanding at their weakest pace since last April.
Softening price growth is just one of several cracks that have appeared in China’s once-red-hot housing market. According to a survey produced by Professor Gan Li at Chengdu’s Southwestern University of Finance and Economics, more than 22 per cent of China’s urban housing stock is currently unoccupied. The vacancy rate excludes homes yet to be sold by developers which face severe funding strains. More than 80 per cent of Chinese real estate companies covered by Moody’s, the credit rating agency, which forecasts a contraction in Chinese home sales this year, have “junk” ratings.

Yet the gloom enveloping the residential market contrasts markedly with the solid performance of China’s commercial property market.

Advertisement

A report published by CBRE, a leading property adviser, last month showed that commercial real estate investment transaction volumes in China last year reached 251.7 billion yuan (US$37.6 billion), up 4 per cent on the previous year and a record high. While purchases by domestic investors fell 10 per cent year on year, foreign-funded institutions invested more than 78 billion yuan in Chinese commercial property, a 60 per cent increase compared with 2017.

Advertisement

However, CBRE expects purchases from local institutional investors to pick up this year as looser financial conditions support fundraising. The adviser notes that the sharp drop in government bond yields is “likely to accelerate investment in alternative assets by Chinese insurance companies”.

Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x