Construction & Property Focus Group Quarterly Update - Q2 2014

Published on 2014-07-03

The Chinese property market has been in the press frequently over the last few months and not for anything particularly good.

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Property

The Chinese property market has been in the press frequently over the last few months and not for anything particularly good. There is an abundant amount of concerns within the market including the state of the shadow banking sector and the possibility of contagion into the property sector, residential oversupply in lower tier cities and price discounts spreading into higher tier cities.

There has been limited movement by the government both at central and local levels, with attempts to encourage banks to lend to first time buyers and potentially loosen house purchase restrictions or promising new Hukous if properties are purchased. These steps may help to partially offset the slowdown in the sector but negative buyer sentiment persists, resulting in weaker transaction volumes in the first hand market resulting in an exacerbation of the situation.

Though less talked about, except within the property industry, concerns also exist within the office and retail sectors where over investment in new developments, especially by domestic developers, is beginning to translate into large volumes of new supply that current demand levels are unable to absorb given current economic and consumer dynamics.

The current star of the property sector continues to be the logistics sector, which is in stark contrast to more traditional sectors such as office, retail and residential, with higher yields, better growth prospects and a relatively underinvested sector. The ecommerce sector is driving demand. A recent KPMG report stated that China’s ecommerce market will be the combined size of the United States, Britain, Japan, Germany and France by 2020. On the back of this one developer estimated an investment of US$2.5 trillion in land and warehouses would be needed over the next decade and a half to support rising demand.


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