Savills: Stable investment levels with softening sales seen in September

“While most land and investment indicators remained relatively positive with YTD YoY growth rates accelerating, most other indicators have continued to record a slowing pace of growth as we enter the final quarter of the year,” said James Macdonald, Director of China Research.

National real estate data for September 2017 was released on October 19, 2017.

YTD figures analysis

Real estate investment stood at RMB8.06 trillion in the first nine months of 2017, up 8.1% year-on-year (YoY). Furthermore, total land sales increased 12.2% YoY, from 149 million sq m to 167 million sq m. At the same time, the total land sales consideration increased 46.3% to RMB815 billion, indicating that the average price of land sold increased by 30.5% to RMB4,870 per sq m. New starts continued to slow to 6.8% YoY in the first nine months, with 1.31 billion sq m currently under way.

The volume of space completed increased by 1.0% YoY to 577 million sq m, a significant slowdown compared to last month’s figure of 3.4%. Currently, there remains 7.38 billion sq m under construction, up from 7.16 billion sq m a year before. The volume of space sold increased to 1.16 billion sq m by September 2017, up from 1.05 billion sq m the previous year, while the average price paid increased 3.9% YoY to RMB7,922 per sq m. The combined effect of these two indicators means the total consideration paid increased 14.6% YoY, to RMB9.19 trillion.

Despite the restrictions found in many markets since late 2016 and the tighter credit environment, figures from the first nine months remain relatively healthy. Floor space completed and sales volumes have softened.

While most land and investment indictors remained relatively positive with YTD YoY growth rates accelerating, most other indicators have continued to record a slowing pace of growth as we enter the final quarter of the year. This is obviously a result of a number of restrictions that have been implemented to control real estate purchasing demand as well as the tougher lending environment that has seen the cost of debt increase and the availability of debt decrease both for institutions and individuals.

Outlook

A sustained effort to control debt levels is looking increasingly likely as the central government and international community realise the current pace of debt inflation is unsustainable; this is likely to have far ranging implications for the pace of development in the property market. Many market watchers agree the golden era of real estate development in China is behind us, at least quantitatively speaking.

Real estate development, especially on greenfield sites, is likely to abate while real estate institutions will increasingly focus on urban rejuvenation and project renovations and redevelopments as well as asset management and preventative care. The pace of urbanisation and the need for additional built space in many cities, especially those with population controls, will be increasingly unnecessary. Nevertheless, the replacement of old and dilapidated buildings and building repurposing will gain pace as landlords look to maximise returns from increasingly valuable assets.