• China Real Estate Market Outlook 2020: A Complete Overview

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    China’s real estate market has grown immensely in the past years and is a key component in the Chinese economy. We’ve seen both ups and downs with a big correction in 2015-2016, during the stock-market crash.

    Currently, China’s economy has slowed down and we see an escalating trade war with the US. So how will this affect the market?

    In this article, we take a look at how China’s real estate market has performed the past years and what the predictions are for 2020.

    China’s Real Estate Market in Previous Years

    China’s real estate market is an important driver of the Chinese economy and accounts for 30% of the total GDP. The market is currently one of the fastest-growing markets in the world.

    As prices have surged since the 2000s, setting foot into the housing market has become popular to gain wealth. Many of the luxury goods and sports car you see in places like Shanghai (there are a few) is bought with money made from real estate.

    According to the National Bureau of Statistics, the major cities have seen higher increases in residential house prices. This is mainly the case for first-tier and second-tier cities like Shanghai, Beijing, and Shenzhen.

    Showing you some interesting data, below you can see a summary of the average real estate prices per square meter from 2013 to 2016, which speaks for itself.

    Shanghai Real Estate Prices

    • 2013: 16,192
    • 2014: 16,415
    • 2015: 21,501
    • 2016: 25,910

    Beijing Real Estate Prices

    • 2013: 17,854
    • 2014: 18,833
    • 2015: 22,633
    • 2016: 27,497

    Shenzhen Real Estate Prices

    • 2013: 23,457
    • 2014: 24,040
    • 2015: 33,661
    • 2016: 45,498

    Guangzhou Real Estate Prices

    • 2013: 13,954
    • 2014: 14,739
    • 2015: 14,083
    • 2016: 16,346

    Many of us have the impression that Shanghai and Beijing house prices are more expensive. But the fact is that Shenzhen has outranked these cities with prices growing immensely in the past years.

    Many people in the West haven’t even heard about this dynamic tech- and financial hub that becomes increasingly important to China as a whole. It’s become one of the major financial hubs, it’s closely tied to Hong Kong, and with favorable policies.

    It was the first city to open up to the foreign world in 1978, thanks to Deng Xiaoping, and grew with an astonishing rate of 40% per year from 1981 – 1993.

    Cooling Measures in Beijing

    The Chinese government has seen the issues with the fast-growing house prices and investors’ love in the real estate market. Therefore, it saw no other choice than to introduce new measures to cool down the market.

    The most notable change came in March 2017. The difference has been night and day since, with Beijing being affected the most. The new housing regulations included changes like:

    • Down payments increased from 50% to 60% for second residential houses
    • Down payments increased from 70% to 80% for bigger homes
    • Individual mortgages for 25 years, or more, were suspended
    • Buyers were banned from acquiring a third property

    The main idea behind these changes was to encourage buyers to live in their houses, not simply buying them as investments. The fact is, many Chinese investors and private households prefer to invest in real estate.

    According to CNBC, Chinese households put two-thirds of their assets in real estate, while American families put around half of their assets in real estate.

    Why is this the case? The main reason is that investors in other countries tend to invest more in stocks. Not surprisingly, there’s a reason why Chinese don’t trust their domestic stock market.

    It’s simply too volatile as individual holders account for 80% of the trade volume in the Shanghai stock market, for example.

    These individuals often collectively “panic-sell” based on rumors and chase short-term gains. You’ve probably read about the Chinese stock market crash that went on from 2015 to 2016.

    The market crashed hard during this time and speculation among locals was mainly to blame.

    Beijing’s Commercial Property Market

    2019 was a good year for Beijing’s commercial property market as foreigners bought a large number of assets from local firms. The main reasons were due to economic uncertainty and due to China’s tighter financial regulations.

    In the first six months alone we saw RMB 25 billion in property investments in Beijing, compared to RMB 38 billion during the whole year of 2018, according to JLL.

    Cooling Measures in Shanghai, Guangzhou, and Shenzhen

    beijing-real-estate-market

    Other big cities like Shanghai, Guangzhou, and Shenzhen introduced cooling measures just months after Beijing. One year later, in March 2018, we could see an effect as the market cooled down and prices dropped by double digits in places like Beijing.

    In July 2018, the China Research Index showed that the number of sold houses decreased by 10% from the previous year. One month later, Shanghai and other cities announced the ban for corporate purchases of residential houses.

    On the real estate developers’ part, the construction sector has also slowed down, mainly because of the slowed demand and reduced amount of transactions.

    In addition, developers have restrained from building new houses as they have a lower inflow of cash and are unsure about the real estate market in general.

    Shanghai’s Commercial Real Estate Market

    The commercial property market has performed significantly well in China, where Shanghai stands out. Just listen to this: In 2019, it became the second most actively traded commercial real estate market globally, just behind Tokyo.

    The city accounted for 37% of all commercial property deals in mainland China alone, which is just astonishing.

    How will China’s real estate market perform in 2020?

    shanghai-shenzhen-guangzhou-real-estate-markets

    The government continues to keep a tight grip on the real estate sector, especially in the first-tier cities (read: Shanghai, Beijing, Shenzhen, and Guangzhou).

    By May 2018 the government had announced more than 100 housing measures. We’ve seen a shift in the growth to third-tier and fourth-tier cities, that are less restricted. This trend will continue and China will closely monitor the real estate market in the first and second-tier cities.

    According to Reuters, house prices will grow by as little as 3.1% in 2020, the lowest number since 2015. 2020 will be a challenging year for China as the market is inflated, the government’s main task will be to prevent a burst that could lead China into a long recession.

    Some experts even compare China’s overheated property market with Japan’s housing bubble that burst in 1991, resulting in the country’s “lost decades”.

    China’s Economy Relies Heavily on its Real Estate Market

    As mentioned, real estate accounts for around 30% of China’s GDP, at the same time as two-thirds of the Chinese keep their assets in the real estate sector. Consequently, houses are crucial for both the Chinese economy and for the people.

    The Chinese government does its utmost to avoid a real estate market crash, as it may drag down the whole economy. Chinese families may lose big parts of their savings, resulting in reduced purchasing powers.

    Even if the Trump administration announced a trade war against China in 2018, where both countries increased tariffs on imports, the domestic residential market hasn’t been affected as much.

    There’s been no visible impact on the commercial property markets either. The demand for office space from tech companies and multimedia companies remain strong.

    In the BOAO & 21 Century Real Estate Forum held in July, most real estate experts say that property prices will continue to increase at a moderate speed, especially in less restricted third-tier and fourth-tier cities.

    China is almost halfway in urbanizing the country, and one of the most important parts in its urbanization is to construct new buildings.

    As mentioned earlier, the demand has surpassed the demand. Therefore, some analysts believe that the supply won’t meet the demand, which might keep the market above the surface, or even drive up prices more.

    Summary

    The Chinese real estate market has grown much in the past years, but started to cool down after the government introduced new regulations in 2017.

    The market is still hot with increased activity in third-tier and second-tier cities. The government has imposed new policies in mainly first-tier and second-tier cities as these real estate markets are some of the hottest in the world.

    That said, China is neither the easiest place or the best place to buy property as a foreigner in 2020, due to various reasons. You must work or study there for at least a year before you can buy one unit, being used for self-dwelling purposes.

    Unless you’re a global firm that invests in commercial real estate, you have plenty of other options, offering better yields and fewer hurdles with strict foreign buyer’s regulations.

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