A dozen Olympics sports centers, a slew of office towers, and new infrastructure including a cross-city underground railway, a massive airport terminal, and a colossal National Stadium will cost Beijing nearly US$40 billion. However, only US$2.91 billion, or 7.3% of this amount has been invested in the construction of stadiums.
Another US$37 billion will be invested in infrastructure, with approximately US$105 billion poured into the property sector.
With all this activity, it is no surprise that the property market is heating up in Beijing.
Counting down the days to the Beijing Olympic Games, people are showing little sign of losing their appetite for bricks and mortar in China. Demand for real estate in some of the country’s fastest-growing cities has eased in the last quarter, but prices have still risen by more than 10% in the past year.
Shenzhen’s residential property, for example, struck a chord with a year-on-year increase of 28% in the first quarter of this year.
Since 2003, the anticipation for the Olympics has contributed more than two percentage points to Beijing’s annual growth. Economically, this means that the Olympics has the greatest impact on Beijing among all Chinese cities.
In the first quarter of 2007, Beijing recorded an 8.7% year-on-year price increase in its property market. In recent years, the Olympics have increased investment sentiments in property, and driven up housing prices in Beijing.
In January 2007, Beijing Mayor Wang Qishan announced plans to boost the construction of affordable housing. This is part of wider plans to alleviate inflationary growth in Beijing’s real estate market, and to ensure that housing prices are kept down.
All told, the past two years have seen a string of tightening measures issues by the central government in an attempt to cool the country’s rocketing property markets. These measures have included new taxes on property transactions and higher mortgage down payments.
The latest restrictions imposed specifically targeted property purchases by foreigners and residents of Hong Kong and Macau.
From a broader perspective, China’s growth is inducing demand for business and office space, and the Olympics are accelerating this pace. In Beijing, during the first quarter of this year, the commodity property supply increased by 9.7% year-on-year to 3.6 million square meters.
In the same period, the stock of new supply of Grade A office space in Beijing was recorded at 6.4 million sq m. The total stock of office space in the capital is expected to reach as much as 13 million sq m.
Central business districts and Zhongguancun account for over 40% of Beijing’s Grade A office stock, which went up by 500,000 sq m during the first quarter of this year. The vacancy rate rose from 13% in the fourth quarter of 2006 to 14% in the first quarter of 2007.
The ample supply prospects help to moderate the price growth in Beijing’s office sector.
The capital values for Beijing’s Grade A office space increased 4.3% year-on-year during the first quarter of 2007 to US$2,555 per sq m, as monthly rentals for this space remained at US$28.6 per sq m, and registering at a 1.1% year-on-year increase.
Due to sufficient supply, the capital values for Grade A office in Beijing are expected to grow on a smaller scale with a 5% increase in 2007 while the monthly rental level remains stable.
There is no doubt that the Olympics are firing up China’s property market, but the rise of property prices in Beijing is still moderate compared to other major cities.
Nonetheless, Beijing will remain the apple of investors’ eyes as Olympic developments and the central government’s regulatory measures continue to accelerate the rate of property growth.