As a part of View from the Peak’s Expert Conference Call series, we invited Robert Ciemniak, Founder and CEO of Real Estate Foresight to share with us his latest thoughts and projections for China’s residential property market. Real Estate Foresight’s analytical approach is unique, combining data science with on the ground research designed to support investors with their due diligence, city selection and strategy development on property investments in China.
Robert’s track record in forecasting China’s property prices has been excellent predicting the top in 2013 and the subsequent rebound a year later. His discussion covered current price trends, the supply outlook and the pace of inventory work-down. He also discusses a series of themes which points to the divergent nature of the market as a whole. While many of us fixate on nationwide indices, it is clear that China residential property market is more segmented and efficient than most give it credit for.
There is clearing, pricing, supply and volume divergence not only between Tier one, two, three and four cities but also within each tier and within each city itself. It is a sign of a very healthy market as there is price dispersion not only between cities themselves but also within cities and between neighboring projects. The Chinese buyer is becoming very discerning about the quality of the projects they acquire.
Policy divergence is also being witnessed with provincial and local governments showing discipline to ease price gains in booming cities such as Shenzhen and Shanghai. Other cities that haven’t benefited from the boom in the last 12 months continue to ease restrictions. Targeted, regionally implemented policy will always work more effectively than a generic nationwide approach. This means that we all need to take a sum of the parts approach when looking at housing policy. We need take a city by city approach, something Robert does well.
The market has become more concerned about oversupply speculating that price appreciation will accelerate new supply, exacerbating the inventory clearing in some areas. The source of concern is the Gross Floor Area (GFA) under construction vs. GFA of sales which could indicate a large amount of supply coming on line vs. demand. However, this must be looked at with certain caveats and in the context of other supply indicators. Slumping land sales and slow starts point to supply discipline that previously did not exist. Inventory clearing still has a way to go but quality properties clear quickly while others do not. Sounds pretty efficient to me.
His conclusion is that we are close to the top of this property upturn because policy tightening measures are starting to be implemented on a central and city level. However, the divergence in pricing and tightening restrictions means there are still investment opportunities on a more local or project-specific level.