Introduction: Major developer’s, as well as, overseas investors has a foothold in the mainland china and is keeping a closer look at the central government in every move, and more so on macroeconomic measures and changes in regulations and rules.
The high end office market in southern and northern china experienced increases in rental and high rates of occupancy, which were notably driven by the ever growing land. Office rentals in shanghai, eastern china, in Ningbo and Nanjing showed reasonable increases while a decline in rentals of office was reported in the third quarter in Hangzhou (China real estate investment handbook, 2011).
The high –end retail leasing market in various china cities started picking up in 2010 as a result of market demand return. In the year 2009 and 2008, international retailers implemented a cautions scrutiny towards the market as a result of the global financial crisis which led to delay in stores opening. Nonetheless, they regained the much need assurance in the market in the year 2010, and they increased their expansion (Diener, 2011).
The central government tightening issues has had a significant impact in the residential real estate sector, the sales of residential property attained to a record high in the year 2010. In cooling down property market, as well as, dispiriting speculative investments, sorts of control measures were introduced. Body:
The draft proposal on china’s 12th Five year plan (2011-2015) was released in late 2010, which avails an outlook into the future directions and steps for sustainable growth of china’s real industry. Investors shall be required to be well advised to ally themselves with the new policy guidelines that the central government has charted in the 12th five-year plan. The plan highlights significant economic challenges of china that require to be balanced, as explaining how the central government is intending to address them (Diener, 2011). The major issues in it include.
Raising the living standards of the citizens through making house plans improvement: the local government requires increasing their efforts in establishing housing that is affordable. Furthermore, they need to speed up the slum areas reconstruction, building public rental housing, as well as, increasing housing supply for medium and low-income citizens.
It also concerns the boosting of market supervision. The sector of real estate is supposed to moderate in an orderly manner, retrain speculative demands, and promote healthy and stable development. The core government plans to strengthen financial policy regulation and land taxation, accelerate housing information system development. Moreover, it assists in improving the established housing policy measures and mechanism to be in line with the nation conditions.
The plan also calls for reform in taxation and fiscal structures. For instance comprehensive reform of resource tax shall be implemented, the national government shall levy environmental protection tax and promote and study real estate tax reform.
Reforms in resource-type products pricing: land is amongst the input factors that require to be put in accelerating reform agenda. Finally, the plan concerns resource management and conservation. This entails plan management system enhancing, strengthening planning, and conducting control measures on a yearly basis, as well as, restricting land utilization. Whilst low cost housing is strongly encouraged, the central government of china maintains its efforts of improving land use efficiency through the restriction of vast apartments (with the floor area larger than 90 square meters), as well as, villas.
The policies of real estate shall serve a significant role in lining the widening wealth disproportion at both the scale ends. The major implication of this plan is that the residential real investment in china shall continue facing government scrutiny and the projects which are complying with the social and green goals shall be favored. Individuals, as well as, agencies who invest in china’s real estate shall be affected greatly, as a result of this plan.
Implication to investors: According to the Central bank, the banks in china lend about RMB 509.5 million in the form of loans to the real estate sector in the 2011 first quarter. This entailed homebuyers and developers.
The amount is significantly lower compared to RMB 843.3 billion in smaller period in the year 2010, indicating the ongoing credit tightening of China (The economist, 2011). Property developers increasingly shift towards equity financing, as the central government shall continue curbing lending to the real estate firm. Regarding to the residential sector, the increased supply of reasonable housing should have a little impact on the non-subsidized housing market price level; however, it is expected to ease tension amongst first home buyers.
Generally, private developers target mid to high-end clients, who deliver properties of high qualities and searching for relatively higher profit margins. In brief, it is not expected that the developers shall be willing to be involved actively in the development of pure public housing projects, that generate net margin of only a fourth in comparison to those from normal property development projects, unless they can discuss a package deal on whether to enhance their stance with the central government.
Moreover under the new five year plans green guidelines, it can be anticipated that investors ever more appreciate investments in sustainable real state. An ever-increasing number of policies that are encouraging shall be formulated. This will be for the purpose of favoring the development projects of green building developers try complying with the sustainability standards to receive the government support. Nevertheless, there is still a considerable lack of green building proficiency.
Green building shall be a major topic in the real estate market of China, and the distinction amid the true, and pseudo green construction shall become more apparent over time (The economist, 2011).
Conclusively, the central government has made it lucid in its 12th five year plan that it requires to promote economic development through raising the levels of domestic consumption. Developers of real estate, investors and property funds, welcome the support of consumption growth of China, with shopping mails and retail developments being the major beneficiaries through this move.
The activities of investors in the real estate sector are primarily dominated by domestic investors. As foremost-tiers cities like Shanghai and Beijing experience limited availability and high cost, investors increasingly search for more distant frontiers to attain higher yields. In third and second –tier cities, and the areas that look more promising appear to be residential and retail development, followed by logistic funds, office space and hotels. A significant advantage of the investment of second-and third-tier cities is that the cities have higher demand growth, as well as, lower costs of acquisition compared to the first tier cities.
In retort to the capital tightening by the central government, the developer’s of real estate shall serve to establish a relationship with foreign and alternative funding sources. Corporate bonds insurance, Sibno-foreign joint ventures and private equity investments are increasingly significant funding sources. Nonetheless, foreign investors require to be selective in the investment strategies in China, they require to categorize investment chances that follow a distinctive and a clear rationale, compared to relying on the market entirely.
In summation, residential real investment shall continue facing government scrutiny and projects which act in accordance with social and green goals shall be favored. In light of an expenditure boosts, the commercial sector avails attractive chances but remains very challenging as complexity and quality requirements rise. Long term investment policies inevitably require to be aligned with Chinese new five year arrangement.
Bibliography: Diener. (2011). China’s 12th Five-Year plan and its implications for the real estate market Newsletter Q2 page 1-4. Accessed at: http://www.dienersyz.com/wp-content/uploads/DS_Newsletter_Q2_2011.pdf China real estate investment handbook, the details that make a difference. (2011). China real estate industry practice page 1-23 Accessed at: http://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Industries/Real%20estate/cn_RE_investmentHB_040511.pdf The economist. (2011). The 12th Five-Year Plan: China’s Economic Transition Economist corporate network. Accessed at: http://www.finnode.fi/files/39/The_12th_Five-Year_Plan_Chinas_Economic_Transition.pdf