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Chinese residential market backed to grow further despite price fears

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The Chinese residential sector will continue to offer opportunities for architects despite soaring prices leading to fears of a collapse, experts insist

A Deutsche Bank report last month stated that ‘a clear sign of bubble comes from the land auction market’ in China. It predicted a ‘severe correction’ in 2018.

Property consultant JLL reported 80 per cent growth in high-end residential prices in Henan Province capital Zhengzhou in the year to the second quarter of 2016. High-end property price inflation was above 30 per cent over the same period in Suzhou, near Shanghai, and in Shenzhen, close to Hong Kong.

But JLL head of research Joe Zhou saw no reason for these price increases to deter architects from seeking work in China.

‘Despite the volatility in the market, China is still in the developing stage,’ Zhou said. ‘The construction activity, though not expanding as fast as five or 10 years ago, is still substantial, which provides opportunities for architects.’

Patrik Li, sector lead for infrastructure at the China Britain Business Council, said the high demand for homes in China was not just speculative.

‘While many property buyers see [a home] as an investment with a guarantee of double to triple-digit return, an even bigger majority are first-time buyers trying to secure a home to start a family,’ he said. ‘Chinese people are raised with the expectation that young couples can only become a family if the husband owns property.’

Li said he expected the drive to buy homes to continue. ‘There simply isn’t an alternative to investing in property,’ he said. ‘The stock market is heavily controlled, bank accounts and other wealth management vehicles offer almost no dividends on investments, and foreign investments are restricted to mostly private individuals. That means a lot of money is looking for opportunities and currently the only valid option seems still to be the property market.’

And he suggested that western China could offer a huge source of housing work. ‘Most of the western parts of China are still underdeveloped and will need massive housing investments over the coming decade or two,’ he said. ‘So my guess is that big developers will move into those regions. More cities will move into the 10 million-plus inhabitants club.’

But he warned that there was strong competition from local architects and that it was not easy for British practices to win work in the Chinese housing sector. 

Shanghai Suzhou Creek

Shanghai Suzhou Creek

Source: Augapfel

Shanghai Suzhou Creek

Sean Ellison, senior economist at the Royal Institution of Chartered Surveyors, said official data showed that residential prices in large Chinese cities were 20 per cent higher in every month of 2016 than in the same month a year earlier.

But he sounded a note of caution to firms looking to capitalise on the housing boom in China.

‘This run-up in prices has broadly been driven by the rapid extension of credit,’ he said. 

‘Credit expansion will eventually need to be curtailed, and property, like other asset classes in China, is particularly prone to policy.’

Deutsche Bank’s report said that across 19 Chinese cities, unit land price went up nearly 140 per cent on average from the first eight months of 2015 to the first eight months of this year. 

‘Indeed unit land prices in many auctions are even higher than the finished apartments nearby, a phenomenon referred to as “flour more expensive than bread”,’ said the study. 

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