The good news for Chengdu's 9.8 million residents is that although new government policies curbing speculative real estate investments have now been in effect for several months, sales of new residential properties in the city have been little affected. One indicator is lending for real estate purchases, as indicated by data from the Chengdu provident fund management center, shows no change in the average daily loan volumes issued in recent months.
There are three main reasons the Chengdu market has seen little impact from the new policies. Firstly, the supply of new property is at levels that are not considered excessive relative to that of standard housing, which makes up 70% of the total supply, making the market less attractive to speculators who prefer high-end housing. Secondly, the average annual price increase since 2002 has been about 10% and the new policies have slowed the rate of increase. Thirdly, only around 11% of transactions are considered speculative. As a result of the macro-adjustments and market controls, these speculators have largely withdrawn their capital from the market already. Another reason, according to James Hawkey, Executive Director at Cushman and Wakefield, may be the laid-back manner of the locals.
Compared with the secondary property market, the effect of the new policies on the primary market is more obvious. Investment capital of developers was RMB503.9 million in May, RMB415.2 million in June, and RMB350.1 million in July. Indications of the future prosperity of the Chengdu market come from foreign investment in real estate development. Data from the Chengdu statistics bureau in July 2005 shows that foreign developers, including those from Hong Kong, Macau and Taiwan, invested nearly RMB2 billion in the first six months of the year.
The SM Group invested RMB650 million in the construction of SM Square. Singaporean Yanlord Group invested RMB1.6 billion in the project Yanlord Square, an international office and foreign resident?s mixed-use development. Keppel Land also has two projects in Chengdu: The Botanica and the award-winning The Waterfront. In February 2005, Hutchison Whampoa Limited and Cheung Kong (Holdings) Limited invested RMB347.2 million to purchase a 370,000 sq.m. site in Wenjiang district for mixed-use development.
A total of 288 new properties went on sale during the first half of 2005. The downtown area has seen 163 new properties with a total floor area of 13.96 million sq.m., equivalent to 57% and 62% of the whole market, respectively. The downtown area remains the main location for new supply, though this trend will change with the rapid development of the suburbs and the limited availability of land in the down-town area. We expect new properties in the 'burbs' will exceed that of downtown area in the future.
In downtown locations, the average price of new property is RMB3,702 per sq.m., and the average price of commercial housing is RMB3,339 per sq.m. Only 5% of the properties in Chengdu, with a sales price of over RMB5,000 per sq.m. are considered 'luxury', a bargain compared to Shanghai's pricing which approaches nearly Rmb50,000 per sq.m.
The Chengdu market displays four characteristics which suggest an undeveloped market. First, although there is a rapid increase in the amount of suburban property in Chengdu, the downtown area, which accounts for less than 30% of the population, is still the main location of new properties. The property market has yet to spread to the suburban areas, unlike Shanghai, where business and light industrial development supported by tax policies areas has stimulated growth beyond the built-up areas.
Second, properties priced between RMB3,000 per sq.m. to RMB4,000 per sq.m. occupy the largest proportion of available property and are to be found in the south and east of the city, in the west between the middle ring road and outer ring road and in the north between inner ring and middle ring.
Areas in the south and west of the city are seeing the most development activity as they are the preferred or more traditional locations. As may be expected, pricing across the whole city is being driven by prices in the city center.
And finally, most housing stock in Chengdu comprises low-rise apartments and multi-storey apartment blocks with the latter being the cheapest. There is clearly plenty of opportunity for upgrading over the coming years, as indicators point to the direction that the market may be heating up gently, or as Hawkey puts it, 'man zou' – taking it easy.
The opinions expressed in this article are the personal opinions of Sam Crispin
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