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Overview of Beijing Residential Market

Market Review

The overall residential market warmed up during the first quarter of 2005 with growth in demand for all kinds of residential properties. New supply in the serviced and leasing apartment markets was seen. The high-end leasing apartment market was relatively active this quarter. Its occupancy went up sharply. The serviced-apartment market remained steady. Vacancy rates of high-level villas went up because of new supply.

In terms of government policies, the People's Bank of China adjusted the commercial banks' self-support mortgage loan policy.  The new policy was suggested to control the lower-limit on commodity housing's mortgage lending rate and to increase the minimum down payment in cities or areas where real estate prices are rising too rapidly.

Supply

With regards to serviced apartments, one of the two buildings of Marriott Executive Apartments Palm Springs-Beijing entered the market this quarter. Other new projects, such as the Beijing Golf Palace and Park Avenue, also entered the high-end leasing apartment market this quarter. However, many are for owner-occupation and only a few units are available for leasing. As for the villas, although new projects such as Grand Hills entered the leasing market after Chinese New Year, units available for leasing were limited and their effect on the overall villa leasing market was minimal.

On the sales front, new luxury residential projects are mostly located in northern Beijing. In eastern areas, some projects introduced their latter phase such as Yosemite Area C. However, the number of new units launched to the market was limited.

Rental Prices and Vacancies

In sum, the average luxury residential rental market was stable this quarter. Leasing-apartment vacancies decreased quite noticeably by 3.6 percent. Overall vacancis of serviced apartments remained stable while that of villas rose slightly.

In view of serviced apartments, introduction of new projects did not bring much pressure to the market. Average rentals remained stable at US$20.10 per month per square metre (sq.m). High-end serviced apartments that are well-managed with full amenities are always the most favourable choice for expatriates. Therefore, the vacancy rate of such high-end serviced apartments was the lowest among all serviced apartments, at 10.4 percent.

Some new units that were completed at the end of last year began to be launched into the rental market this quarter. The number of staff relocating to Beijing have increased as many companies expanded their investment and businesses in China. Strong demand brought the vacancy rate from 34.5 percent to 20.6 percent. The average rental of leasing apartments remained stable at US$15.30/month/sq.m.    

After the Chinese New Year, many senior executives of multinational companies returned to Beijing with their families. The demand for villas increased. Its average rental rose slightly to US$21.80/month/sq.m. The average vacancy rate increased because of new supply to the market.

Sales

The average luxury residential price remained stable. Prices of selected projects have increased. DTZ's survey indicates that the high-end residential price index of Beijing was 98.6 durng the first quarter of 2005. In the Shunyi submarket, the average price rose more noticeably than other submarkets because of the launch of new luxury projects such as Cathay View.

Market Outlook

Companies' expansions and their new business initiatives in China will bring additional expatriates to Beijing. Demand for serviced apartments will continue to increase. With limited new supply, the market is expected to go up next quarter and slight growth in rentals may be recorded.  In addition, as new supply is absorbed gradually, vacancy rates will continue to decline.

For luxury leasing apartments, new projects will continue to exert pressure on the market. Projects entering the market in in the first quarter of 2005 will grow into a better living community eventually. Furthermore, projects at prime locations with beautiful environmental settings and reasonable unit layouts are most attractive to tenants. Average rentals will remain steady.

Because of the control of villa land supply by the government, new supplies of high-end villas will remain steady in the near future. Market rentals are expected to maintain their current levels as demand remains strong.

As for the high-end residential sales market, some new projects will be launched onto the market next quarter. Demand for high-end projects remains strong. High-end residential prices still have room to increase.

Following the People's Bank of China's document, commercial banks in Beijing altered their mortgage lending rates in March. The borrowing cost for investors has increased. The purpose of this policy is mainly to cool any overheating in the property market. The effect on the general public's housing demand should not be affected.