China Office: 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 1^st and 2^nd 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 1^st hand transactions: 

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

A)     Between Beijing and Shanghai = there is no particular reason to favor one over the other, though reportedly Shanghai has fewer supply and a lower vacancy. If one deems the two cities to be at least on par in terms of market scale, global appeal, urban quality, and so on, then perhaps Shanghai should deserve a slightly closer look.

B)     Between Guangzhou and Shenzhen = while Shenzhen appears to be pricier (and priciest among even the Big 4 of Beijing, Shanghai, Guangzhou, and Shenzhen), it has reportedly lower supply compared to demand and possibly in future as well. This may be one of the reasons for its being higher than Guangzhou in average prices.  

C)     Among the 2^nd tier cities = Chongqing may deserve some interest as its price level appears to be low compared to the others. Also, unlike Chongqing’s retail sector, its office sector does not have a comparatively higher supply situation.  

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.  

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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