The China property market has taken off, with prices in Beijing, Shanghai and Guangzhou rising by as much as 40 per cent during the course of 1992: primarily due to increasing business activity from foreign and domestic enterprises.
A substantial increase in the registration of joint venture companies and foreign representative offices had taken place, resulting in a rising demand for good quality commercial and residential premises.
Of significant importance is the fact that domestic companies are now both willing and able to take up space in international standard developments, thus creating a new source of demand. Domestic demand will further fuel the growth. of the real estate industry in China.
A number of factors contribute to regional price variations in China:
* There is a greater supply of properties for sale in southern China than in the north or central areas.
* Limited supply of properties for sale in Beijing and Shanghai have led to an active rental market.
* The south China cities are more open to international practices influenced by Hong Kong but the northern cities are more conservative.
* Market segmentation differs in the north and south. Major demand in Beijing and Shanghai comes from western and Japanese multinational companies, mostly in the rental market. But in south China, small to medium size trading and manufacturing concerns from Hong Kong, Macau and Taiwan are keen to purchase properties as owner occupier.
It is expected that overall demand in the major cities will increase in line with continuing economic growth. Investors however should exercise caution in the smaller cities specifically along the Pearl River Delta, where over supply as taken place with the exception of retail premises.
The control and management of land lease continues to face problems arising out of conflicts of interest between central and provincial government organisations in the process of real estate development. The provincial government prefers immediate income from development while the central government has the development and planning of the entire country in mind.
As the open door policy is put into practice, central government planning has given way to the open market mechanism of supply and demand, especially in south China. Local real estate investors and developers are learning to plan new developments using feasibility studies, including profit projections. In the same vein, individual investors seek the advice of professional agencies before making any property purchase.
The Chinese government has taken positive steps to further improve the growth of the property market in the country. Healthy dialogue between professional bodies and societies in the property industry in Hong Kong and the hinese government has helped to move the mark forward but legalised property management regulations and the establishment of secondary market operation to facilitate the transfer and re-sale of properties is still to be established.
For international investors looking for opportunities in China, Colliers Jardine recommend that purchases be made with reputable developers and agencies to ensure adequate legal protection, good quality building work and high management standards upon completion.
While the China property market is still very much in its infancy stage, Colliers Jardine believes that this will be one of the most active and exciting markets by the end of the century.
The major concern of the moment, however, is that the government must take a more decisive and organised approach in the upgrading of the infrastructure and community facilities to support the growth of the industry. *
William Wong is manager of China operations for Colliers Jardine, international properties consultants in China, active in the management, sales and leasing of developments in the coastal cities.