China’s Building Spree

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

August 2007

China is one big construction site as regular visitors to her cities, 1^st or 2^nd tier, would likely agree. Here is a chart showing some recent statistics on so many square meters (1 square meter m2 = 10.76 square feet ft2) of construction floor area being built [‘Composite’ means the total of residential, office, retail, and other sectors]: 

How huge is the market exactly? In numeric terms, some 551,170,100 m2, or 5,930,600,000 ft2 of floor space are being constructed in 2006 with the bulk of them related to residential real estate.  

Still find this difficult to fathom? Try this; using only the residential construction figure of 401,950,900 m2 (or 4,324,991,684 ft2) and dividing this by 100 m2 (or 1,076 ft2), assuming the latter to be the average unit floor size, we would have around 4,019,509 (AS IF) residential units under construction. Naturally this is only an “AS IF” figure as residential units come in different floor sizes and the exact average is unlikely to be a neat figure like 100m2. Nonetheless, for the purpose of this article, this order of magnitude is sufficient.  

By the same token, the AS IF volume of office construction is 359 office towers each of 100,000 m2 floor size, and the AS IF figure for retail is 308 malls each of 200,000 m2 in floor area.  

Are these building volumes alarming? No doubt these figures do look huge. While it is difficult to ascertain if a country even as populous as China can really do with so many AS IF hundreds of big office towers and big malls, the millions of residential units however do not seem overly bloated.  

While these new residential units to be may be unevenly distributed among the various cities (markets) thus leading to regional-local oversupplies, or they may be over-designed - overbuilt – oversized – overpriced etc in some cases to cause supply and demand mismatches, the 4M or so figure is not so alarming if one takes into account the 1,300,000,000 people divided by 3 (people per household, the exact national average is even slight lower at 2.94 members per household) = around 433,000,000 households. In short, the number of new residential units per household is less than 1%, or not even 1 new residential unit for every 100 households. Even if 2/3 of the non-urban population is to be left out of the equation, the percentage is still less than 3% bearing in mind these new units to be may be spread out for completion over a few years.  

To many foreigners, China conjures up images of huge population and big families with 3 or more generations living under one roof. While these have some truth in them, they also reflect certain misunderstandings or misconceptions: 

a)     Despite being the most populous country on Earth, China has a lower density (138 people per km2 of land), i.e. number of people per land area, than the UK (248 people per km2). Naturally, population tends to be unevenly distributed and the coastal East of China has higher density, thus making the 138 people / km2 suspect. Nonetheless, in a similar way, the same could be said of the UK where the bulk of the population is concentrated in (SE) England.  

b)     The big extended family had certain bearing in the past, yet the typical household in China today has less than 3 people (2.94) comprising 2 generations (parents + kid). And the extension is up not down i.e. instead of 2 grandparents + 4 parents + 8 children, it is now 1 grandchild + 2 parents + 4 grandparents.  

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