China Residential: Scouting for Comparative Bargains via Average Prices per Floor Area

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

June 2007

(Based on Data from Soufun - China Real Estate Index System CREIS)

We have been studying in relative detail the macro real estate statistics provided by Soufun-CREIS and have performed some basic calculations. One such calculation involves a comparison of the average prices per floor area (Yuan / m2, 1 m2 square meter = 10.76 ft2 square feet, and US$1.00 = 7.65 Yuan as of the date of writing this article) among nine 1st and 2nd tier cities-markets. Using the Beijing average price per floor area as base [=1.00], the average prices of the remaining cities are compared to it. A figure higher than 1 means the city・s average is above Beijing・s, while a figure lower than 1 means it is below Beijing・s. The nine cities are Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Chongqing, Wuhan, Hangzhou, and Chengdu. Please note these average prices reflect mostly 1st hand transactions: 

China Residential: Beijing = 1

Year:

 

 

 

 

Average Prices Yuan / m2

2002

2003

2004

2005

2006

Beijing

1.00

1.00

1.00

1.00

1.00

Shanghai

0.89

1.12

1.21

1.03

0.95

Guangzhou

0.89

0.89

0.92

0.84

0.83

Shenzhen

1.18

1.24

1.34

1.02

1.22

Tianjin

0.54

0.55

0.62

0.67

0.63

Chongqing

0.29

0.30

0.33

0.29

0.28

Wuhan

0.43

0.45

0.52

0.47

0.48

Hangzhou

0.72

0.82

0.82

0.77

0.81

Chengdu

0.40

0.43

0.47

0.39

0.47

A few observations can be made as follows (purely from the table above): 

A)     Between Beijing and Shanghai = the latter may deserve some more attention as comparatively it seems to harbor a bit of bargain potential, given its historic tendency to be higher than Beijing・s in recent times. This may have to do with the higher price increase rate seen in Beijing in the last couple of years.

 

B)     Between Guangzhou and Shenzhen = the former appears to have some bargain potential as its ratio to Beijing・s is the lowest in recent times. This disparity with Shenzhen may be due to Shenzhen being the city with the highest price increase rate in 2006 among the 1st tier cities.

 

C)     Among the 2nd tier cities = Chongqing may deserve some interest as its price level appears to be low compared to the others. Nonetheless, this alone is not a sufficient reason for investment and based on data seen, Chongqing harbors also one of the highest supply growths.  

Stating the obvious, the above is based purely on the data presented above and technically this is not sufficient for formulating a firm investment decision. Other factors and analyses are required for more comprehensive consideration. Please also note that the ratios in the above table can only tell if a city・s average price is higher or lower than that of Beijing during a particular time period i.e. it does not automatically infer price rise or fall.

*For details on these studies and data and how to subscribe to them, please contact us.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

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