Savills: Investment growth rates increased to their fastest pace since the end of 2014

17 April 2018

“Investment growth rates underscore large-cap developers’ continued confidence in the long term prospects of the market and their ability to manage debt obligations as well as cash positions amid heavily regulated market conditions,” said James Macdonald, Senior Director of China Research.

National real estate data for March 2018 was released on April 17, 2018.

YTD figures analysis

Real estate investment stood at RMB2.13 trillion in the first three months of 2018, up 10.4% year-on-year (YoY). Furthermore, total land sales increased 0.5% YoY, from 37.8 million sq m to 38.0 million sq m. At the same time, the total land sales consideration increased 20.3% to RMB163 billion; this indicated that the average price of land sold continued to grow, an increase of 19.6% to RMB4,298 per sq m. New starts increased 9.7% YoY in the first three months, with 346 million sq m currently under way.

The volume of space completed contracted in the first three months compared to a year ago, down 10.1% to 207 million sq m. 6.47 billion sq m remains under construction, up from 6.37 billion sq m a year before. The volume of space sold increased to 301 million sq m by March 2018, up from 290 million sq m the previous year, while the average price paid increased 6.6% YoY to RMB8,507 per sq m. The combined effect of these two indicators means the total consideration paid increased 10.4% YoY, to RMB2.56 trillion.

China got off to a relatively good start in 2018 with business confidence remaining intact while economic growth rates beat expectations with a 6.8% growth in the first quarter, despite the government campaign to de-risk and deleverage the financial markets.

Investment levels in development opportunities recorded new local highs as larger developers seized the opportunity to gain market share and explore new asset categories. However, the pace of completions seems to have slowed due to a tightening of approval for pre-sale permits and smaller developers placing construction on hold or reassessment of strategies and financing.

While sales volume growth rates in the residential market remain relatively positive off a low base and continued destocking activities in lower tier cities, the commercial markets are showing a slowdown with office sales recording a contraction and retail exhibiting a marked slowdown.

Outlook

While the economy and real estate market recorded a relatively good start to the year there remains concerns about the impact the financial de-risking and stricter environmental standards could have on the pace of growth.

The increasing cost of debt and its limited availability is likely to forestall significant investment by small to mid-size developers who tend to suffer from more limited cash flow and portfolio diversity. Larger developers with more varied forms of financing and stronger branding are likely to extend their market share in the industry.

As the construction industry matures, we are expecting to see more developers evolve their business models to more income producing asset classes and management platforms while also looking more closely at how to reduce asset holdings and wind down gearing levels.

Glossary

YTD: Year-to-date

YoY: Year-on-year

MoM: Month-on-month

 

 
 

Key Contacts

Olivia Shao

Olivia Shao

Director
Marketing & Communications, Savills China

Savills Shanghai

+8621 6391 6688 Ext.8893