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A Quarterly Overview of Beijing Residential Market (Q3, 2004) About the Beijing Residential Market Overview of Beijing Residential Market Beijing Office Market Review A Quarterly Overview of Beijing Residential Market(4Q2004)

Beijing Residential Market Review

Overview

In the short term, governmental macroeconomic control policies seem to be having little effect on housing sales prices in the primary real estate market in Beijing, especially in the Beijing Central Business District (CBD), but the controls seem to be encouraging property developers and some owners to offer their properties in the leasing market, which is driving down rental rates.

Overall, the luxury residential market was stable in the third quarter (Q3) of 2006. Little fluctuation was seen in leasing and vacancy rates during the quarter if compared to the second quarter of 2006, except for sales prices in the primary market, which continued to increase.

The most important macroeconomic policy announced during the quarter was the Suggestions on Admittance and Management of Foreign Capital in the Real Estate Market, which was jointly issued by six national-level ministries. The guidelines established regulations concerning the management of foreign capital in the Chinese mainland real estate market. In August, the People’s Bank of China increased its deposit and lending rates. This was the second mortgage lending rate increase since the second quarter.

Leasing Market

Demand

With winter on its way––a slow time in the market––some landlords and developers of serviced apartments lowered rents on some units. So the average rental rate for a serviced apartment fell slightly, by 0.5 percent, to 167.3 yuan /month/square metre (sq.m). Lower rental rates sparked an increase in rentals, including high-quality serviced apartments, and a reduction in this sector’s vacancy rate. Overall vacancy rate fell by 1.9 percent to 20.2 percent, down from 18.4 percent in the second quarter. 

If compared with 2005, fewer new units entered the leasing apartment market. Less-expensive leases reflect the market’s huge existing stock. Stricter government controls of the market, several increases in lending rates for home buyers and strengthened tax management of second-hand housing sales transactions combined to force investors to make their units available to the leasing market. In this quarter, the average vacancy rate of leasing apartments rose to 27.1 percent from 24.6 percent, even though the average rental rate remained steady at 114.4 yuan /month/sq.m.

As for villas, because of lower rentals and improvements in quality, the new projects launched last quarter successfully increased their occupancy rates. The average vacancy rate dropped to 16.4 percent from 20.9 percent. But rents remained stable at about 138.3 yuan/ month/sq.m.

Supply

Few new projects entered the leasing market except for one tower of the Park Avenue complex. No new serviced apartments or villas came onto the leasing market in the third quarter.

Outlook

Traditionally, the fourth quarter is a low season in the residential leasing market. The coming winter may affect the activities of arrivals of multinational companies’ senior executives. At the same time, with many foreign business people and their families returning to their home counties, a weakened demand for serviced apartments is expected, although rental and occupancy rates for serviced apartments are expected to remain steady.

Fewer new projects will be launched in the leasing apartment market in the fourth quarter, and activity is not expected to pick up until after those that exist are decorated and put on the market, likely after the Chinese New Year in 2007. Prices are expected to remain steady because of existing excess supply. Landlords and developers are requesting lower rental rates to attract tenants. Overall, activity in this sector will be slack.

For leasing villas, tenants usually prefer units that have quality environments and maintenance. Housing with outdated decorations and furnishings will suffer in the market, even though average rental and

Primary Market

Demand

In Q3 2006, sales prices on the Beijing luxury market continued to increase. Especially in areas that lacked new supply, such as in the CBD, the prices of units in latter-phase existing developments climbed significantly. Those projects not only drove up the prices in the areas, but also affected overall trend of the Beijing primary market.

Investment Market

In this quarter, the Ascott Group of Singapore announced that they have purchased two projects in Beijing and Tianjin to expand their business activities on the mainland. One is the Laccueil Residence in Beijing’s Zhongguancun area, which will be renamed the Somerset Zhongguancun Beijing after redecoration.

Supply

After a period of wait-and-see, more new supply entered the market than last quarter. The major projects were the West End Point in Financial Street and Dragon Bay Villa Phase II in the Shunyi Villa Area.

Outlook

In compliance with foreign capital management policies in the real estate market, the Beijing Construction Committee issued detailed rules. Temporarily, it requires that residents from Hong Kong, Macao, Taiwan and overseas Chinese can buy one housing unit for self-use only. Although this regulation may affect high-end residential housing sales in the short term, it is expected to have a positive affect on the market by limiting speculative activities of some overseas buyers and ultimately control spiralling housing prices in Beijing.