China Residential Real Estate: More Supply Coming

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

November 2006

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

We have assembled some basic real estate data dated from January to August 2006 on the commodity (private) residential sector in the following 9 cities: Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Chongqing, Wuhan, Hangzhou, and Chengdu. Collectively as a group, and notwithstanding exceptions and the various market cooling measures, these markets have shown to be relatively resilient and have shown increases in price and sales movements based on media reports.

Here are the basic statistics

Cities

Construction  in Progress 0,000 m2

Newly Started 0,000 m2

Completed 0,000m2

Sold 0,000 m2

Invested Yuan '00M

Sold Yuan '00M

Sold Price Yuan / m2

Hangzhou

3,071.90

421.20

214.10

328.90

181.80

204.70

6,223.00

Wuhan

1,956.30

603.80

250.60

524.20

150.50

180.60

3,446.00

Chengdu

3,008.89

920.79

375.88

792.22

252.22

263.83

3,330.00

Shenzhen

2,058.77

442.70

273.63

460.83

194.73

403.37

8,753.00

Guangzhou

3,123.99

613.01

478.16

581.37

190.43

343.43

5,907.00

Chongqing

5,357.17

1,220.43

566.94

951.22

195.16

205.25

2,158.00

Shanghai

7,003.99

1,192.18

876.48

1,599.86

577.59

1,118.78

6,993.00

Tianjin

2,035.59

592.15

435.85

750.26

165.07

321.64

4,287.00

Beijing

5,333.92

1,018.13

796.03

1,316.38

464.93

943.44

7,167.00

Total

32,950.52

7,024.39

4,267.67

7,305.24

2,372.43

3,985.04

 

And these are the very preliminary observations:

1)      Beijing, Shanghai, and Chongqing = are the 3 most dominant cities in terms of residential construction volume, which is not surprising given their population sizes and economic might, the latter especially with regards to Beijing and Shanghai. Chongqing for the unfamiliar reader is a city with 31,000,000 people while Beijing and Shanghai have 15,000,000 each.  

2)     Completed floor areas are generally less than sold floor areas = which may be a comforting sign as this could mean a lower accumulation rate of unsold properties, though please note that while the completed figures refer to construction completed in the stated period, the sold figures may include floor areas built earlier.  

3)      Newly started floor areas are generally higher than sold floor areas or completed floor areas = this implies we shall see higher levels of supply overall in the foreseeable future though this in itself may not necessarily spell gloom and doom as the rapid economic growth pace would mean there could be more households wanting and being able to purchase. Also please note that Beijing and Shanghai (and Tianjin) actually have lower newly started construction than sold floor areas.

4)      Sold $ is higher than Invested $ = this again may offer some comfort in that the market and the suppliers (developers) have not gone overly aggressive pouring in more money than they could expect to retrieve and technically development and construction costs should generally be lower than sales revenues. It may also mean some if not all developers could look forward to a good return.  

Readers may be curious to know how profitable (or not) real estate developers in China are and this is a question requiring comprehensive and in depth research which is beyond the scope of this article, notwithstanding the expected challenges in finding usable data and agreeing on various technical definitions of profitability. Nonetheless, your humble author has naively and boldly used a crude method made available by the above table. The invested Yuan figure is divided by the newly started figure and this could give a very rough cost per m2 of floor area which is then compared to the price per m2 figure. The difference between them is then divided by the cost per m2 figure thus giving an idea of the gross margin. These range from a low of 22% to a high of 99% for the 9 cities mentioned above. No wonder so many non-real estate groups are eyeing or going into real estate.

Cities

Rough Margin %

Hangzhou

44%

Wuhan

38%

Chengdu

22%

Shenzhen

99%

Guangzhou

90%

Chongqing

35%

Shanghai

44%

Tianjin

54%

Beijing

57%

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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