China’s real estate market has grown greatly 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. Besides, the COVID-pandemic had a negative on the market as countries were forced into lockdowns and investors became cautious.
With that said, China rebounded quickly and there were no restrictions of movement at the end of 2020. Besides, the country will be important for a quicker economic recovery in not only neighboring countries, but to the global economy as a whole.
In this article, we take a look at how China’s real estate market has performed in the past years and what the predictions are for 2021.
Topics covered in this article:
- China’s Real Estate Market in Previous Years
- China Real Estate Prices
- General Overview of the Price Increases
- Cooling Measures in the Chinese Real Estate Market
- How will China’s real estate market perform in 2021?
- China’s Reliance on its Real Estate Market
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 also one of the fastest-growing markets in the world currently.
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.
China Real Estate Prices
Below you can see a summary of the average real estate prices per square meter in previous years in major Chinese cities.
The following price increases in Shanghai are in RMB.
- 2013: 16,192
- 2014: 16,415
- 2015: 21,501
- 2016: 25,910
Looking at real estate prices in various districts in 2019, the local real estate website An Ju Ke has reported the following figures, in RMB:
- Huangpu: 129,900
- Xuhui: 121,111
- Changning: 119,666
- Hongkou: 100,000
- Jing’an: 98,133
- Yangpu: 92,705
- Putuo: 90,244
- Minhang: 62,174
- Pudong: 61,148
- Baoshan: 50,662
- Average overall: 47,963
In 2020, prices rose to as much as RMB 50,000 to RMB 60,000 per square meter on average according to Forbes, even outperforming the year of 2019.
Beijing has seen great price increases as follows in the previous years.
- 2013: 17,854
- 2014: 18,833
- 2015: 22,633
- 2016: 27,497
According to Savills, the average price for high-end apartments increased to a staggering amount of RMB 96,915 in 2019. Again, keep in mind that this is for high-end and not general units, but the amount is still astonishing.
The capital is well-known for having prices similar to that of Shanghai and Shenzhen as it accumulates interest and capital including everything from investors, families, and corporations.
CEIC, on the other hand, reported that average prices for houses overall increased to RMB 39,448 per square meter in November 2020, up from RMB 38,965 per square meter just a month before.
To many people’s surprise, Shenzhen has seen the strongest growth, and prices have reached abnormal heights.
- 2013: 23,457
- 2014: 24,040
- 2015: 33,661
- 2016: 45,498
In fact, Shenzhen has seen some of the fastest price increases in the world. By the beginning of 2019, prices averaged at as much as RMB 55,632 and where much capital is concentrated in the affluent area of Nanshan.
PwC’s yearly analysis in the report Emerging Trends in Real Estate Asia Pacific 2021 also claims that Shenzhen will see some of the highest rental increases in 2021, just behind Singapore and Ho Chi Minh City.
Guangzhou has seen modest price increases by comparison, not only in the previous years but also throughout 2020. The city is expected to see tepid price increases throughout 2021 as well.
- 2013: 13,954
- 2014: 14,739
- 2015: 14,083
- 2016: 16,346
General Overview of the Price Increases
Many of us have the impression that Shanghai and Beijing house prices are the most 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.
As reported by CNBC, the following real estate markets reported the highest prices as of April 2019:
- Hong Kong: USD 1,235,220
- Singapore: USD 874,372
- Shanghai: USD 872,555
- Vancouver: USD 815,322
- Shenzhen: USD 680,283
- Los Angeles: USD 679,220
- New York: USD 674,500
Interestingly, Vancouver has seen great price increases due to investment from Asia, and particularly mainland China.
Cooling Measures in Beijing
The Chinese government has seen issues with 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 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.
The main reason is that investors in other countries tend to invest more in stocks. Not surprisingly, there’s a reason why the 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.
Beijing’s commercial real estate market has remained upbeat in 2020 thanks to promising yields and for being less overheated than the residential market.
Cooling Measures in Shanghai, Guangzhou, and Shenzhen
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 Market3h>
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.
The same as for Beijing, the commercial property market has remained surprisingly resilient throughout 2020. Transaction volumes doubled year-on-year in the second quarter of 2020 in China as a whole.
How will China’s real estate market perform in 2021?
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% in 2021, the lowest number since 2015.
In 2020, the growth was set to almost 5% in 2020, a reduction to 3% is the lowest since 2015 and the latest stock crash.
Don’t get me wrong. Keep in mind that China rebounded early during the COVID-crisis, thanks to softened lending policies and strong consumer confidence.
To deflate the current property bubble without bursting it, the government tries to boost consumption, something that will become an increasingly important economic driver.
China’s Reliance 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 remains 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 of 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.
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 but was negatively impacted due to the COVID-pandemic. 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 nor the best place to buy property as a foreigner in 2021, not only due to economic reasons but also regulations for foreign ownership.
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.