China: Some Macro Residential
Real Estate Numbers
Zeppelin Real Estate Analysis Limited
on media news and published reports, e.g. the Blue Book of Real Estate,
one would sense that collectively the residential real estate markets
are huge. Nonetheless, when taking into account the 1,200,000,000
population, some numbers do not feel that staggering. Here
are a few observations based on the commodity (private market)
residential real estate sector in the top 40 cities:
Construction volume completed in 2003 = 322,000,000 m2 or close to
3,500,000,000 m2 of floor area
with the Eastern / Seaboard region occupying close to 60% of the volume. The
remaining 2 regions i.e. the Central and Western regions shared the rest by
roughly 50 / 50. How significant is 3.50B m2 of floor space? Assuming 1,000
m2 per residential unit, then we are looking at on an order of magnitude
level some 3,500,000 homes (the USA produces around half the number).
One may say this number is not entirely impressive as China has 4 times the
population of USA yet produces only twice as many homes as in the USA. While
this is not incorrect, the majority of people in China are still relatively
poor (China¡¦s GDP per capita is just US$1,000 while the USA¡¦s is US$30,000
or thereabouts) and perhaps a private residential real estate market of any
meaning exists only among the top 25% to 30% of the population. This
production volume is not insignificant, especially when one considers that
another 325,000,000 m2 or 3,600,000,000 m2 of floor space were
started in 2003.
sold in 2003 = 285,000,000 m2 or close to 3,100,000,000 m2 of floor area
with the Eastern / Seaboard region taking some 61% of the transactions while
the remaining two regions shared the rest 50 / 50. Using the same
assumptions as above, this amounts to roughly 3,100,000 homes, and
the sold to completed ratio is around 88% (please note however some of the
sold floor area might have been completed in earlier years).
vacant floor area = 83,360,000 m2 or close to 900,000,000 m2,
amounting to an equivalent of 900,000 units of home using the same
assumptions as above. Geographically, 61% of the vacant space is located in
the Eastern / Seaboard region. The rest is shared by the Central and Western
regions in a ratio of 21 to 16 respectively. Assuming an average household
of say 4 people, there are more than 300,000,000 households in China, and
out of which say 1/3 is urban enough to have a meaningful residential real
estate market, we are looking at a ratio of 900,000 / 100,000,000 = 0.90%.
Naturally, the distribution is unlikely to be even.
Invested = 1,310,000,000,000 Yuan or around US$158,000,000,000,
figure includes both commodity and non-commodity real estate investments.
Using the same ratio of 66% that was observed in 2001 and 2002 for the
commodity residential real estate sector, around 865,000,000,000 Yuan or
US$104,000,000,000 would have been spent in 2003. Dividing this money figure
by the floor area commenced in 2003, the average cost per floor area was
around 2,661 Yuan per m2 (which is quite close to the average price per m2,
perhaps implying a tough market).
= this was
the 2002 figure and the 2003 figure is expected to be higher even if only
slightly. Most are China-bred companies and are relatively small in terms of
capitalization. It is not unreasonable to expect many of these companies
would either go out of business or leave the real estate industry given the
recent tightening of related finance-liquidity, laws, and supply.
the China residential real estate market production-supply numbers are huge
on their own yet do not seem overly anxious given the vast population and
looking from a longer term angle. Nonetheless, some form of bubble, short
run perhaps, may exist in certain cities as supply can be uneven.
Furthermore, the average price per floor area sold being close to the
overall production cost per floor area suggests a very competitive and tough
market yet with most / many developers still expecting prices to go up
further in years to come despite there is no or little money to be made
based simply on today¡¦s prices, thus implying and increasing the bubble
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