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Property wobble in China spooks architects

A 25 per cent drop in housing transactions last month has shaken confidence in the world’s largest construction market, while UK architects warn of increased competition from local firms

News that China’s housing sector is cooling has raised fears that the country’s seemingly unstoppable building boom could be slowing down.

According to Chinese government statistics revealed last week, private housing transactions fell 25 per cent last month. Property prices also fell in 22 cities out of 70.

Government restrictions to prevent a property bubble include a block on non-occupier owners in Shanghai, increased deposits for first and second homebuyers and refusing lending to third homebuyers and non-local investors.

Gordon Affleck of Hong Kong-based 10 Design admitted the ‘reining in’ of the residential market by central and regional government over the past year had stunted growth in first-tier cities such as Shanghai. ‘Whether this is a cooling or a burst is still unclear.’

He added: ‘While first-tier cities are feeling the brunt of this, second- and third-tier cities are not as badly affected.’

David Roberts, chief executive of Aedas Asia, which operates four offices in China, said there was ‘no sign whatsoever’ of architecture practices scaling down or making redundancies.

He added: ‘Architects are only at risk if they are involved in speculative residential real estate developments or projects that are not conceived in line with market demands.’

PRP Architects director Richard Tremeer, who has completed projects in China, said medium-sized Chinese practices focusing exclusively on residential projects had seen workloads ‘slow down significantly’ in the past three months.

Tremeer added that there were still ‘masses of [affordable] houses going ahead in the next few years’, but warned, ‘unfortunately, it doesn’t equate to a balancing of architectural work as far as we’re concerned. The affordable work is going to local practices, and we are finding it difficult to compete on fees and deliverability.’

In response, Tremeer predicted that foreign practices, and those with a minimal footprint in the country, may be forced to employ more Chinese nationals, which could ‘alter their business model’.

He said: ‘China-based work that was keeping parts of practices busy in the UK is less likely to do so because the work is getting more competitive and as a result, fee levels are dropping.’

He also warned the biggest problem for UK architects in China may be increased competition from international companies. ‘There are a lot more foreign practices out there now.’

Roberts agreed: ‘European companies in particular are joining the queue to enter the Chinese market, given the sluggish economies in Europe.’

Sparch Asia director Stephen Pimbley said competition had increased ‘exponentially’ since the company set up its first China studio eight years ago.

He said: ‘A client recently told me that a starchitect who had previously shunned work had now agreed to cut their fees by 35 per cent. Perhaps not a reflection of the bubble bursting in China, but of a lack of puff in Europe.’

Steve Brown, Buro Happold managing director for Asia-Pacific and India, said: ‘If China does fall apart, it’s going to hit us all. It’s going to make to make what’s happening in Greece look like a haircut.’

However, he suggested a slow-down might be an opportunity for architects to move away from ‘large, campus-style developments and residential monoliths’ and become ‘more sensitive to the cultural needs of the country’.

He added: ‘The reality is the Chinese market is booming and GDP is growing in excess of eight per cent. Rethinking what our clients [require] is not a bad thing.’

Roberts also said the outlook is good for 2012, especially in mixed-use, commercial and hospitality. ‘Also, in sectors like civic, healthcare and education, there is an emerging demand for foreign expertise.’

According to Ted Givens, design partner at 10 Design, the hotel and retail sectors are also promising. ‘The retail boom is really just starting because there is a whole chunk of people who now have money to spend.’

But Lance Taylor, chief executive of quantity surveyor Rider Levett Bucknall, which employs 1,250 staff in 19 offices in China, warns architects to ‘be wary of the marketplace’ and to focus on social and civic infrastructure projects in China’s second- and third-tier cities.

Taylor also suggested that improvements in China’s home-grown design capability might be ‘a bigger risk to architecture than a slow-down in the Chinese market’.

 

Thinktank report

- 8.6 % Forecast drop in China’s residential per annum average growth rate from 2010 to 2015

Global Construction 2020 study by Global Construction Perspectives and Oxford Economics

Global Construction 2020 study by Global Construction Perspectives and Oxford Economics - click to view

Economic thinktank Global Construction Perspectives and Oxford EconomicsGlobal Construction 2020 report forecasts the average per annum growth of China’s residental construction output could halve from 16.3 per cent in 2005-2010 to 7.7 per cent in 2010-2015.

Graham Robinson, director of Global Construction Perspectives said: ‘If the market was to correct too sharply, then it would be the single greatest risk to construction globally.

‘Long term, we are forecasting that growth will slow. [However] at the moment, we are predicting a soft landing.’

 

 

 

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