Outlook Stable for Residential Real Estate, Executive Says

(Davos, Switzerland) – Beijing is likely to maintain its campaign to rein in China’s residential real-estate market at current levels this year, as transaction volumes in major cities begin to recover from a plunge in 2017 after the program began, the Asia chief of leading global firm JLL told Caixin.

Local governments in China’s largest cities launched a major campaign to cool an overheated residential property market in the fall of 2016, mostly targeting speculators buying more than one property with only short-term ownership intentions.

That campaign caused sales of residential property to plunge by 43% in terms of transaction volume last year in China’s largest cities including Beijing, Shanghai, Shenzhen and Guangzhou, Anthony Couse, Asia Pacific CEO of JLL told Caixin on the sidelines of the World Economic Forum taking place this week in Davos, Switzerland. Second-tier cities like Chengdu and Tianjin saw transaction volumes drop by 23%, translating to an overall 27% drop for tier-1 and tier-2 cities combined, he added.

At the same time, smaller cities where cooling policies were largely absent saw their transaction volumes actually rise by 9%.

The cooling program also had a similar dampening effect on home prices, which were generally flat last year.

“All in all, residential is pretty solid,” Couse said. “Prices are where they’re meant to be and the government will be happy with results from 2017. The austerity measures have achieved exactly what they set out to do.”

China’s real-estate market is relatively young, with only about 20 years of history. For much of that time it posted breakneck growth, fueled by actual home buyers and also significant numbers of investors betting on continued rapid price appreciation. President Xi Jinping has tried to cut back that latter element of the equation, notably saying at the 19th Communist Party Congress last fall that, “Homes are for living in, not for speculation.”

Couse predicted the government wouldn’t roll out any new cooling measures this year, but would keep the existing ones in place to maintain the market’s stability. That should allow transaction volumes to rebound somewhat to notch modest growth of around 10% in tier-1 and tier-2 cities this year, though overall prices will remain stagnant.

Separately, Couse said that Xi’s anti-corruption campaign has resulted in more transparency for the country’s broader real-estate market, which in turn has attracted more foreign investment. He said that trend has helped to lift China’s commercial capital of Shanghai into the top echelons of favored destinations for global real-estate investors.

The city at the mouth of the Yangtze River was the world’s 11th most popular global destination for offshore investors in the first three quarters last year, following an even stronger 6th place finish for all of 2016, Couse said. It wouldn’t have even made the global top 20 before the anti-corruption campaign began about five years ago, he added.

“Since the anti-corruption campaign began, we’ve seen China climb up the transparency index,” he said. “That’s important for global investors who like to see more transparency. … To get a China city into the top 10 is very impressive.

Contact reporter Yang Ge (geyang@caixin.com)