Is Beijing bucking China property bubble?

If there is a property in bubble in China, it is certainly not happening in Beijing according to third quarter figures from Beijing-based property company DTZ Debenham Tie Leung.

According to DTZ, third quarter residential property figures were down on the previous quarter, both as regards rent and price. The corresponding DTZ indices were down 0.76% and a whopping 3.0% respectively.

In contrast, residential property prices in Shanghai have gone up 15% to 20% on average in the past year.

What makes Beijing's weak pricing surprising is that the previous quarter was the period of the SARS crisis, so many were expecting a strong rebound. But although prices are down, residency levels in properties have bounced back, partly because foreign expats have flocked back to Beijing.

The average vacancy rate for Beijing apartments decreased 3.77% from 27.17% to 23.40%. The vacancy rate for villas fell 4.09% from 16.04% to 11.95%.

Indeed, growth is so anemic, the authorities are coming out with policies to prop up the market , such as document 18. This is useful, say developers, because it classifies properties more accurately than before. The information will be then used to dictate the pace of land supply by the state.

Similar steps are being taken to help the market for villas. Development of new villas is being suspended and the supply of land restricted.

Experts say there are number of reasons why the property market is less attractive in Beijing than in Shanghai.

"The Beijing market lags Shanghai in terms of its development. While Shanghai already has a fairly developed second-hand market, the number of second hand-units in Beijing last year was just 8000 - although growth has been steep," points out Winnie Yip, DTZ's general manager in Beijing. "But you still have to pay off the mortgage before you can sell. "

Nor is it easy to check the deeds of the used property you have your eye on. You need to use a lawyer and pay a fee.

And when you have bought the second hand property and want to transfer the deed to your name, the local government bureaucracy can take months or years to process the paperwork.

To get around the problems selling lived-in flats most of the buying is pre-buying. This is then sold at a premium as soon as the project is finished.

Another reason, as the new legislation limiting supply indicates, is that a glut of property is coming onto the market.

Beijing developers must finish construction well ahead of the Olympic Games in 2008. Property developers are racing to finish and more and more properties are coming onto the market - mainly in the medium to high end.

Last but not least, FPD Savills' Beijing leasing manager Ngu Ka Sen suggests that there is more long-term demand in Shanghai.

"Shanghai is at the centre of three tremendously dynamic areas: Shanghai city itself, and the two manufacturing provinces of Zhejiang and Jiangsu. Around Beijing, by contrast, you have the less-than-exciting provinces of Hebei, Inner Mongolia and the industrial rustbelt of Liaoning," he says.

The level of Western expats in both cities is the same, although Shanghai also has over 250,000 Taiwanese living in or around the city.

They and other overseas Chinese have been quick to invest in the city's thriving property market, as have Western investors attracted by the relatively international and business-friendly environment.

In contrast, in Beijing, a city dominated by the bloated government apparatus, in the year up to September, less than one per cent of residential housing was sold to foreigners. Locals made up the bulk of the buyers, although Chinese buyers from outside Beijing snapped up 22% of sales.

Not surprisingly, 57% of foreign buyers preferred the high-end district of Chaoyang in the east of the city, while almost half the out-of-towners settled in the less developed southern part of the city; and the rapidly growing eastern satellite city of Tongzhou.

Ironically, while the rental yields in Beijing are in the 9% range thanks to the scarcity of completed high-end housing, budget housing for the local population is very hard to find. That's because the government, to keep end-user prices low, has restricted profits to just 3%. That is highly unattractive for developers, however.

The government has announced its concern at the economy overheating, with property viewed as one of the prime culprits.17% of all new bank loans currently going into the property sector.

Some economists estimate that full year 'true' GDP growth could exceed 11%, higher than the official estimate of 9%, propelled by dangerous lending practices in property, cars and steel.

Although the government has sought to dampen growth through measures prohibiting the sale of projects until they 2/3 built and limiting the amount of funds lent to developers, fears still exist that the property crash of eight years ago could resurface. Prices fell by 30% and rental yields by 60%.

Share our publication on social media
Share our publication on social media