China's real estate market continues to mature as confidence rises
2016 was a watershed moment for China’s commercial real estate market, heralding the next phase of its transformation into one of the major global destinations for property investors and developers, according to Real Capital Analytics.
While development remains a prominent feature of its property market, higher deal volumes for standing assets are a sign of the maturity and depth of China’s investment market.
The confidence of Chinese developers has risen yet again.
The historic peak of land sales by volume was 2013 and 2016 came close second with $417.5b (RMB 2.8t) transacted.
In line with the growing demand, land prices have spiked.
The sharp price growth has been particularly obvious in Tier 1 cities with 19% growth since 2013.
Land values in Tier 1.5 and 2 cities have risen significantly too, by 61% and 49%, respectively.
China became the Asia Pacific region’s largest investment market for income-producing real estate for the first time, overtaking Japan and Australia.
This is a very prominent milestone in the development of the Chinese real estate market.
As highlighted earlier in the report, a total of $36.5b of real estate, excluding development sites, changed hands in China in 2016.
China also claimed another record in 2016 as the Asia Pacific region’s top destination for foreign investors, who completed $10.2b of transactions there last year.
The value of transactions by foreign investors has doubled over the last five years.
The largest foreign investment in China, as well as the largest single asset office transaction in the world, was ARA AM’s purchase of Shanghai Century Link for $3.0b in Q4’16.
Another facet of China’s robust growth is the expansion of Chinese real estate investors and developers abroad.
RCA data shows that $34.7b was invested abroad by Chinese investors in 2016.
This is 245% above the 10-year average and 51% higher than 2015.
However, the strong growth does not come without its challenges.
Speculation about new capital control rules squeezing the pipeline of Chinese outbound capital is causing some concern among market participants both in China and internationally.
It is reasonable to expect that Chinese outbound capital will slow down somewhat in 2017.
Still, investment and development activity within China’s borders is set to stride into 2017 and beyond.