Meanwhile, China’s central bank has been on an easing trajectory, with its latest decision in February cutting 25 basis points from banks’ five-year loan prime rate (LPR), the largest shave since the LPR was designated as the main rate benchmark in 2019.
“From the commercial real estate perspective, the appetite is quite a tale of two countries: foreign investors continue to look for opportunities in Japan but remain very silent when it comes to China,” said Henry Chin, global head of investor, thought leadership and head of research for Asia-Pacific at CBRE.
Flows of foreign money into commercial property reflect the shift from China to Japan.
In 2019, foreign investment in Chinese commercial real estate reached US$12.3 billion, almost double the US$6.2 billion invested in Japan, according to CBRE’s tracking of all transactions worth US$10 million or greater. By 2021, this gap had narrowed, with China getting US$10.1 billion and Japan US$6.5 billion. In 2022, the two countries received roughly equal foreign investment, US$8 billion for China and US$7.7 billion for Japan. Last year, the tables turned, with Japan taking in US$5 billion and China getting just US$3.2 billion.
China’s share of total foreign investment in property declined from 38 per cent in 2019 to just 8 per cent last year, while Japan’s has been relatively steady at 21 per cent in 2019 and 17 per cent in 2023, according to data cited by JLL.
“Foreign investor appetite could not be stronger for Japan at the moment,” said Pamela Ambler, head of investor intelligence for Asia-Pacific at JLL. “Despite the recent BOJ announcement, Japan is still the only market with accretive cash-on-cash returns. In fact, monetary policy may drive domestics to look overseas, opening up opportunities for foreign investors to enter the market.”
Japan slips to world’s fourth-largest economy, behind US, China and Germany
Japan slips to world’s fourth-largest economy, behind US, China and Germany
Hong Kong-based private equity fund Axe Management Partners is one investor making a major bet on Japan’s commercial property prospects. In March, it completed an acquisition of three hotels in Osaka for 10.7 billion yen (US$71 million).
Currently known as WBF Honmachi, WBF Kitasemba East and WBF Kitasemba West, the hotels have a total of 500 rooms. They are slated to relaunch in the last quarter of the year as part of Garner hotels, a brand under UK-headquartered IHG Hotels & Resorts. They will be the midscale brand’s first hotels outside North America.
“It’s very easy to see that this is an attractive market,” said Gary Kwok, founder and CEO at Axe Management. “In terms of the interest rates, it has a positive carry, and that obviously attracted a lot of the foreign capital looking for a positive yield. And in our view one of the key asset classes is hospitality.”
Axe Management, which has earmarked more than US$85 million for the acquisition and renovation, is aiming for a return of as much as 20 per cent on the investment, Kwok said.
Hong Kong, mainland China office-leasing outlook bleak, CBRE says
Hong Kong, mainland China office-leasing outlook bleak, CBRE says
As for China, opportunities are still present, especially with a number of distressed assets available in the market, said Sam Lau, Axe Management’s founder and managing partner.
“The market is very huge, and China is a place that we can never ignore,” he said. However, the company is being more selective about investments there, he added, looking into hotels, retail and student housing in first-tier cities but avoiding residential properties and offices.
Both Chin of CBRE and Ambler of JLL forecast continued strength in the Japanese commercial property market.
“Japan has strong fundamentals with its strong, stable and transparent economy,” Ambler said. “The yen is also depreciated against major currencies such as the US and Singapore dollars and has interest rate differentials to other countries, which leads to favoured lending terms and yield differences. There are also clear exits in Japan, and it is also a relatively more liquid market.”
Foreign investors, meanwhile, are likely to have a limited appetite for China for some time, Chin said.
China property: rate of decline in investment slows, official statistics show
China property: rate of decline in investment slows, official statistics show
“Japan and mainland China are in different cycles when it comes to commercial real estate,” he said. “We continue to see the growth in Japan while China is currently going through repricing with limited leasing demand.
“The Japanese economy continues to outperform, as the country has experienced real wage growth … However, the Chinese economy faces challenges while the unemployment rate continues to be on the high side.”
Property investments and sales in mainland China continue on a downwards trajectory despite Beijing’s efforts to inject liquidity and boost demand, but the rate of decline has slowed in a sign that the market is starting to stabilise, according to analysts.
In January and February, total property investment declined 9 per cent year on year to 1.18 trillion yuan (US$164.5 billion), according to data released on Monday by the National Bureau of Statistics (NBS). Investment in residential property fell 9.7 per cent to 882.3 billion yuan.
Overall investment slid 9.6 per cent in 2023, NBS said.
“The overall risk [in China’s property market] is manageable because the decline in investment is narrowing, which is a sign that the supply side is stabilising,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute.
The competitive landscape of the property industry is changing, with companies that have healthier financials taking part in more projects than their smaller peers – another positive sign that the troubled market is improving, Yan said.
“With [banks] offering stronger financing support, property investment will likely gain more momentum later,” he said.
Property sales by floor area fell 20.5 per cent year on year in January and February, compared with a decline of 8.5 per cent in all of 2023, according to NBS. Meanwhile, sales value fell by 29.3 per cent year on year in the first two months, compared with a 2023 slide of 6.5 per cent.
The year-on-year decline in January and February sales is due in part to a high base last year, after the removal of Covid-19 restrictions released pent-up demand, pushing sales to record highs, said Chen Wenjing, director of market research at China Index Academy, a real estate research firm.
A longer Lunar New Year holiday and an increase in travel also slowed sales of new homes this year, she noted.
China’s economy rebounds at start of 2024, but property remains a ‘big problem’
China’s economy rebounds at start of 2024, but property remains a ‘big problem’
Additional data from the China Index Academy showed that total sales of second-hand homes in 25 major cities in China declined by 13.1 per cent in January and February by floor area, “significantly lower” than the rate of decline in the new home market in the same period, said Chen.
“Demand is recovering steadily overall, and the second-hand market is expected to maintain its momentum as we hope to see more demand being generated from homeowners wanting to trade-in and upgrade their homes,” she said.
China’s home prices continued to decline for the ninth month in February on a month on month basis, according to data released on Friday by NBS. Second-hand home prices dropped by 0.8 per cent month on month in first-tier cities, and 0.6 per cent in second- and third-tier cities over the same period.
“Most property-related activity worsened broadly and meaningfully in year-on-year terms in January-February, reflecting either unfavourable base effects or sequential weakness,” analysts at Goldman Sachs said in a note.
“Property activity has probably undershot underlying demographic demand amid the ongoing property downturn, but an increasing proportion of demand has been met by the large supply of vacant existing homes.”
Linda Chen, 28, sold her 70 square metre (753 sq ft) home in China’s eastern Hangzhou city for a discount of about 300,000 yuan (US$41,963) and moved into a rented unit of similar size with her husband in December, after paying around 9,000 yuan in monthly mortgage payments for years.
Even after several rounds of mortgage ratio cuts introduced by the authorities last year, the couple still needed to pay more than 7,000 yuan per month, which triggered their decision to sell.
“It was not an easy decision to make, but [the house] was a huge burden,” she said. “I know we needed to sell no matter what the price.”
Chen and her husband are among a growing number of people who would rent rather than buy amid the downturn in China’s economy.
China homes sales continue decline as Beijing fails to shore up weak sentiment
China homes sales continue decline as Beijing fails to shore up weak sentiment
“At present, sentiment has waned and some potential homebuyers have decided to extend their leases instead of buying a home,” said Xu Yuejin, an associate research director at real estate research firm China Index Academy.
The market for rented homes is experiencing some changes because of this trend, analysts said. Overall demand has risen steadily, but there has been a divergence between units at different price points.
There were about 290 million tenants in China as of the end of last year, and the gross value of rent contracts grew to more than 2 trillion yuan, according to an analysis by Beike Research Institute, a Chinese property think tank.
According to China Real Estate Information Corporation (CRIC), however, the value of the rental homes market is expected to grow by 2 per cent to 1.8 trillion yuan by 2026 from an estimated 1.7 trillion yuan last year.
Beike said it expected leasing demand to increase this year, driven by families that choose to rent instead of buying amid expectations of lower economic growth and a record number of university graduates flooding the market.
“The period that tenants have been living on rent for has increased, as they no longer see rented properties as just ‘temporary homes’,” the agency said. “Instead, they see renting as more like longer term ‘settling’.”
‘Thin payout’ for Evergrande’s offshore creditors as legal drama plays out: S&P
‘Thin payout’ for Evergrande’s offshore creditors as legal drama plays out: S&P
The rental market is seeing a “consumption downgrading” phenomenon, which means some tenants prefer properties with lower rents, China Index Academy’s Xu said.
A semi-annual survey conducted by China Index Academy at the end of last year shows that 64 per cent of about 9,000 respondents from across China would consider moving to cheaper rented homes when their leases end, with expectations of lower incomes among their top reasons, Xu added.
Major Chinese cities ease home-buying curbs as policy support gathers pace
Major Chinese cities ease home-buying curbs as policy support gathers pace
“The amount of rents being paid went down overall last year, if you look at the performance of 55 cities [tracked by CRIC],” said Li Jianlin, research director in CRIC’s long-lease department. There was an overall downswing in tenants’ ability and willingness to spend, she added.
“Many individual landlords, who dominate the market rather than institutional landlords, found it difficult to clinch deals for a while after putting their homes up for rent, and were forced to cut rents or else they would lose tenants.”
Also, they are being squeezed by cheaper rental homes backed by the government flowing into the market, Li added.
More fiscal support the catalyst to revive China consumption, housing market
More fiscal support the catalyst to revive China consumption, housing market
In a report released by 58 Anjuke Real Estate Research Institute last month, indicators that reflect supply and demand for rented property rose for medium and low-priced units and decreased for high-priced units, in 40 cities tracked by Anjuke.
In first-tier cities, supply and demand for homes with monthly rents ranging between 501 yuan and 2,000 yuan – relatively low-priced properties – rose by 2 per cent and 2.1 per cent, respectively. Supply and demand for homes with monthly rents ranging from 2,001 yuan to 5,000 yuan decreased by 2.7 per cent and 1.9 per cent, respectively, according to Anjuke.
“Overall, the market showed a lower price for rent, which reflects weaker affordability [among tenants],” the report said.
Suzhou, in eastern Jiangsu province, said this week that it would waive its “home buying eligibility check” for prospective buyers, which previously limited the number and location of houses an individual or a family could purchase in the city, based on their social insurance, personal income tax and residency status.
Buyers from across the nation will be allowed to buy both pre-owned and new homes in any of Suzhou’s six districts, the city’s housing department told the Post on Wednesday.
“Waiving purchase eligibility checks is the biggest possible relaxation to existing restrictions,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. “The new rule also amplifies and upgrades September’s 120-square-metre (1,290 sq ft) rule. Now, buyers can purchase houses of any size in Suzhou without any restrictions.”
The move comes as home prices in major Chinese cities fell at the fastest pace in nearly nine years in December. Prices of new homes in 70 medium and large cities eased 0.4 per cent month on month in December, following a 0.3 per cent decline in November, according to official data.
China home sales to disappoint in January, may fall by up to 15 per cent in 2024
China home sales to disappoint in January, may fall by up to 15 per cent in 2024
Suzhou, a city of more than 12 million residents, has previously experimented with similar measures. Last September, the municipal government said non-residents could enjoy the same qualifications as residents for buying property. Both groups could buy a maximum of three homes with areas of 1,290 sq ft or less. For larger houses, the cap was removed.
Shanghai and Guangzhou rolled out similar easing measures.
Shanghai’s housing ministry said on Tuesday that individuals who have paid income tax or social insurance in the city for at least five years in a row would be immediately eligible to buy one house in select districts, regardless of their residency status. The previous rule stipulated non-residents to be married to qualify for property purchases.
The change was intended to “satisfy residents’ reasonable housing needs and promote work-life balance across districts, in addition to facilitating the integration of cities and industries,” Shanghai’s housing ministry said in a social media post.
The Guangzhou government removed buying restrictions for houses measuring 1,290 sq ft or less on January 27.
“2024 is an important year for wholesale relaxation around housing purchases,” said Yan. “This is fundamentally different from the ‘local relaxation’ that we saw in 2023.”
The latest round of relaxations could prove to be the tonic China’s property market needs this year, he added.
Additional reporting by Yulu Ao
Carmaker Evergrande New Energy Vehicle Group advanced 4.4 per cent to HK$0.239 at in Hong Kong on Tuesday, while Evergrande Property Services jumped as much as 9 per cent before losing 3.8 per cent at HK$0.375. The stock lost 18 per cent and 2.5 per cent, respectively on Monday.
Trading in China Evergrande Group remained suspended after the stock sank 21 per cent on Monday, the company said in an exchange filing.
The High Court in Hong Kong ordered the Chinese developer to be wound up at a hearing, after it failed to repay a creditor and show progress to reorganise its debt. Eddie Middleton and Tiffany Wong from Alvarez & Marsal have been appointed as joint liquidators to take control of its operations.
The liquidation effectively killed the debt restructuring scheme agreed with a group of creditors in March last year, which included issuing new debt instruments that could be converted into shares in the two subsidiaries. This would have eliminated the risk of stock dilution to minority shareholders, analysts said.
Why offshore creditors will remain nervous about Evergrande liquidation
Why offshore creditors will remain nervous about Evergrande liquidation
“It’s possible that minority shareholders of the two subsidiaries will not see further value dilution if convertible bonds are no longer issued,” said Jeff Zhang, an analyst at Morningstar. “However, Evergrande may still pursue restructuring following the liquidation order, so risk remains if similar options are offered to creditors.”
China Evergrande owns 58.6 per cent of the NEV unit and 51.7 per cent of the property management unit, according to its most-recent debt workout plan with offshore creditors.
The demise of China Evergrande has erased as much as HK$1.12 trillion (US$143 billion) of market value after they plunged from their all-time highs, including HK$392 billion in the flagship founded in 1996 by former chairman Hui Ka-yan in Guangzhou in southern Guangdong province.
“Liquidation or debt restructuring for any developer could be complex, and visibility remains low on the compensation that offshore creditors eventually receive,” Zhang said.
A unit of China Evergrande Group, the most indebted property developer in mainland China, has agreed to sell its stake in a project in Shantou, southern Guangdong province, continuing to pare down assets as it awaits the fate of its debt restructuring proposal.
The subsidiary, Hengda Real Estate Group Yuedong, will sell its entire 65 per cent stake in Shantou Hengmeng Property Development for 137.6 million yuan (US$19.4 million), according to a filing to the Hong Kong stock exchange on Thursday evening.
“The disposal serves to revitalise the group’s projects, promote the resumption of work and construction of existing projects, and safeguard the legitimate rights and interests of project investors, creditors and homebuyers,” Evergrande said in the filing.
As part of the transaction, part of the debt amounting to 376 million yuan owed by Hengda and related parties to Shantou Hengmeng, will be waived.
Shantou Hengmeng is developing a 445.4 acre project in Shantou, a prefecture-level city on Guangdong’s eastern coast.
The sale of the Shantou Jinbi Bay project in the Haojiang district of the city commenced in August 2017. Some 478,800 square metres of the development have been sold, with 1,145 units subject to guaranteed delivery.
The buyer, Shantou Hengyao Property Development, “will fully promote the resumption of work and construction of the project to ensure the realisation of the goals of ‘ensuring the delivery of properties, protecting people’s livelihood, and ensuring stability’,” the statement said.
Evergrande expects to record a gain of about 304 million yuan from the disposal.
Home sales in 30 major cities tracked by Chinese financial data provider Wind have dropped by 38 per cent month on month and 10 per cent year on year in the first three weeks of this month, according to analysis by financial brokerage CGS-CIMB Securities.
In China’s tier-two and tier-three cities, homes sales are expected to log a decline of 42 per cent for the whole of January, compared with last month, with the new homes market suffering the biggest losses, CGS-CIMB said. Tier-one cities, meanwhile, might record a 21 per cent month-on-month slide despite recent easing policies.
“These estimates – if realised – imply that the China property sector could approach our bear market scenario, in which we estimate that property sales in China could fall 10 to 15 per cent this year, versus an initial base case of an about 5 per cent decline,” said Raymond Cheng, CGS-CIMB’s managing director.
The CGS-CIMB forecast also includes an annual drop of 3 to 5 per cent in home prices this year and annual industry sales of between 8 trillion yuan (US$1.1 trillion) and 9 trillion yuan, down 55 per cent from a peak in 2021.
China property: why an uptick in Beijing, Shanghai home sales is unlikely to last
China property: why an uptick in Beijing, Shanghai home sales is unlikely to last
To reverse the current, very weak market sentiment, more aggressive policies, such as intervention by the central bank, are needed to change homebuyers’ cautious stance on the property market, Cheng said.
“Dragged down by weaker-than-expected sales, most investors are expected to continue to stay away or further trim their positions in the China property space,” he added.
In a research note published on Monday, British multinational bank Barclays said the contraction in property sales could be wider after falling by 40 per cent year on year in the first half of January. Barclays was citing Wind’s high-frequency indicators.
China’s once-mighty developers face brutal years after end of ‘golden age’
China’s once-mighty developers face brutal years after end of ‘golden age’
“[The] property sector also remains a significant drag on the economic recovery,” Barclays analysts led by Christian Keller said in the note.
With no signs of significant new stimulus measures on the horizon, and in light of the sluggish home sales data, a worsening labour market and weak consumption outlook, Barclays has revised down its growth forecast for the first and second quarters this year by 0.2 percentage points quarter on quarter. It forecasts 4.4 per cent growth for the first quarter and 4.9 per cent for the second quarter, according to the research note. Its full-year growth forecast stands at 4.4 per cent.
At least seven global institutions, including UBS, Goldman Sachs and Fitch Ratings, have previously forecast that China’s national home transactions will fall by up to 5 per cent in 2024, adding to a 10 per cent drop last year.
Any decline in China’s property sector will represent “the biggest risk” to its economy, Wang Tao, UBS’s chief China economist, said at a media briefing this month.
“There is still considerable risk that it will have an impact on residents’ confidence and do harm to the stability of the country’s economy, if the real estate sector goes down further.”
2. China’s shipping containers pile up at overcrowded port as overseas orders dwindle
(Ji Siqi – February 20, 2023)
Although the Lunar New Year holiday ended weeks ago, not all truck drivers in Shenzhen are back to work. On the expressway heading towards Yantian International Container Terminal, several trucks with no containers on their long trailers can be seen parked on the roadside, part of a static convoy that stretches nearly a kilometre (0.62 miles).
“These are only a small portion [of all the empty trucks]. The rest had to be parked in Dongguan,” said a driver surnamed Huang, referring to another city in Guangdong that is an hour drive away from Yantian – one of the biggest Chinese container ports for foreign trade.
Huang is one of the lucky drivers. He had just unloaded a container at the terminal on a Friday afternoon. He said the port has more than 15,000 registered truck drivers, but only around 2,000 of them now have work.
3. China’s bid to lure overseas tech talent home hits a snag: the sector’s toxic work culture
(Ji Siqi – February 19, 2023)
After being caught up in a mass lay-off at Amazon in January, Canada-based software engineer Mark Liu boarded a flight back to his hometown in central China.
The 30-year-old decided to take a rest at home and spend some time with his parents and grandparents, while preparing to look for a new job. But he will not be looking in China.
Liu is still seeking opportunities in Canada, even though the current wave of tech lay-offs there shows no sign of ending.
4. China’s durian demand is a godsend for Philippine trade, but for other Asian countries ‘durian diplomacy’ raises concerns
(Ji Siqi, Ralph Jennings, He Huifeng– February 15, 2023)
More than 900km southeast of Manila, Davao City is dubbed “Durian Capital of the Philippines”. With the volcanic soil of Mount Apo said to give the pungent “king of fruit” a unique flavour, the region accounts for almost 80 per cent of all durians grown in the country.
But now, even the local durian market in Davao is in short supply, as large amounts of the existing harvests have been reserved for China.
It all began with a new bilateral agreement signed between the two countries in early January, following the state visit of Philippine President Ferdinand Marcos Jnr to Beijing, which opened China’s door to fresh Philippine durians for the first time.
5. How are Chinese firms responding as foreign buyers ‘don’t want anything made in China’?
(He Huifeng, Luna Sun, Kandy Wong – May 25, 2023)
The writing is on the wall when it comes to the future of Norman Cheng’s operations in China, and like the protection offered by helmets his company produces, he sees a shift away from China as a matter of self-preservation.
To that end, he intends to open a smart factory in Vietnam next year – a US$30 million undertaking that embraces automation and will essentially be a replica of the plant he opened just last month in the southern Chinese manufacturing hub of Guangdong province.
The decision by one of the world’s largest helmet makers, Strategic Sports, was a long time in the making, and it was not borne out of capacity concerns. Cheng says they have plenty of that in China, where their first automation plant went into operation two years ago, capable of producing millions more helmets a year.
6. Thailand wants to build a brand new shipping route. Why isn’t China buying?
(Frank Chen, Kandy Wong – November 27, 2023)
When Beijing goes on the hunt for weak links in its economic chain, the Malacca Strait is a place Chinese officials and academics often cite as a point of exceptional vulnerability. Many essential materials – particularly crude oil and minerals, which carry vast strategic importance – are shipped through it.
The latest option to come across Beijing’s desk is the Land Bridge project in Thailand, which uses rail links to connect the Andaman Sea and the Gulf of Thailand and bypass Malacca entirely.
7. China to widen Asean trade with first major waterway in 700 years, but will Pinglu Canal be a game changer or white elephant?
(He Huifeng– July 24, 2023)
Chinese authorities like building roads and bridges from times gone by, as connectivity facilitates flows of people, goods and also fortune. But only a few can afford to construct canals that demand massive amounts of labour and mastery of technology.
Over 2,200 years ago during the Qin dynasty, China’s first emperor built the 36.4km (22.6 mile) Lingqu Canal to carry soldiers to conquer the southern tribes and expand the imperial territory.
Qin Shi Huang’s mega project connected Xiang River in Hunan province – a tributary of the 6,300km (3,915-mile) Yangtze River – and Li River in south China’s Guangxi Zhuang autonomous region.
8. Could China’s durian-farming ambitions end up testing Thai and Malaysian market dominance?
(Ralph Jennings, Mia Nulimaimaiti – May 22, 2023)
Malaysian durian expert Lim Chin Khee visits China every two months to help farmers grow the pungent tropical fruit.
Among the advice that the founder of the Durian Academy, near Kuala Lumpur, dispenses to growers of plantations larger than 404 hectares (1,000 acres) is to avoid wasting water and fertiliser.
Malaysia, meanwhile, exports high-end frozen durians from smaller farms to China, a rapidly expanding tropical fruit market for much of Southeast Asia.
9. Tech war: starved of chips, China’s bid to topple US as No 1 economy faces ‘unprecedented’ pressure
(Frank Tang, Ji Siqi – February 8, 2023)
Semiconductor chips are often compared to the beating heart driving technology innovation. But with the United States restricting exports of critical semiconductor components and technology to China, questions are mounting over how long the world’s second-largest economy can maintain a pulse.
Core technologies are China’s Achilles’ heel, despite having the world’s strongest industrial manufacturing capability, and they are easy prey for Washington in its strategy of tech containment.
Without mastery of the fiendishly complex chips that power everything from cars to smartphones, President Xi Jinping’s hopes of transforming China into the pre-eminent global digital power, while surpassing the US to become the No 1 economy in the world, could fall apart.
10. China’s home-grown C919 could break Airbus, Boeing duopoly with ‘brave step into foreign markets’
(Amanda Lee– January 18, 2023)
China’s home-grown narrowbody passenger jet could break the duopoly of Boeing and Airbus in its home market and beyond, despite its reliance on foreign parts, according to a report by a Berlin-based think tank.
The Mercator Institute for China Studies (Merics) argued that the size of China’s aviation market, strong industrial policy and a sector dominated by state-owned companies give the C919 an edge to advance the country’s “strategic objectives” in aviation.