Beijing Apartments investment in real estate

According to the recent Beijing apartments statistic data, Real Estate Investment (REI) in the capital city in 1H09 amounted to RMB90.18 billion, up 13.5% y-o-y. Following a sharp decline of -33.40%, -30.20% and -26.50% y-o-y in February, March and April, the investment sector experienced significant improvement in May and June, as developers quickened their pace to start construction and development, as well as land investment activities, in response to the active sales market. The turning point in May and June indicates that more optimistic sentiment was spread across the property market, supported by developers’ views of growing sales following the solid economic rebound and local government’s positive outlook, as well as policy support.

The liquidity of the capital market in the real estate sector actually injected developers with more confidence and power as they held handfuls of cash to acquire land and accelerate development in the market, when the residential property market rebounded actively and the local economy showed positive signs in late 1H2009. Leading domestic developers took advantage of the central government’s stimulus policy to access funds, through state-owned banking, equity rearrangement and bond issuing. The active developers in

Beijing’s residential market included Franshion Properties, Greentown, GreenLand, Shimao Group, Poly Real Estate, R&F Properties, Gemdale, Sino-Ocean Land, and Longfor Properties. Against the background of policy support from the central and local government, it is worth noting that domestic, as compared to foreign, investors actively took the lead in the current adjustment cycle of residential property market.

The Land Market
As active buying momentum grew across the local residential market, developers became aggressive to acquire land plots in late 1H09, with further consideration of development and pre-sales in the next 2-3 years. According to the Beijing Land Reserve and Resource Centre, a total of 32 residential plots were sold through land auction and bidding process, up 52.4% compared to that of 2H08. locational analysis suggests a trend of development decentralisation in Beijing as there were only four pieces of land coming from the total new land supply patch, whereas in the suburb precincts, 28 plots were acquired for developments. In addition, it should be noted that the land bidding processes were extremely competitive in the Chaoyang, Tongzhou and Daxing districts, despite the claim of adequate land reservation, as properties in these areas enjoy faster asset appreciation resulting from a rapid urbanisation process from infrastructure construction, especially the newly planned subway lines, including Line 4, Line 6 and the Daxing Line.

Of the land transactions, several most eye-catching land transactions has received high level of observations and debates from the local government and a wide range of market participants. In May and June, R&F Properties, Chengdu Zhongze Real Estate Company, one of the subsidiaries of China Electronics Corporation, and Franshion Properties (China) Limited, a subsidiary of SINOCHEM GROUP, made a successful bid through land auction for three urban land lots in the Chaoyang District, all with premium price paid, up to 241.5%, 80.47%, and 146.51%, respectively. The accommodation value for each plot aforementioned is calculated at around RMB15,000 psm, if only considering the commodity housing areas. Given the high land price ripple in the market, prices of second-hand homes in Guangqumen neighbourhood area were lifted by owners’ expectations of asset appreciation. But there remain concerns about the risks of these large residential projects with high land cost to achieve target sales performance, with the possibility that demand may be restrained by soaring prices.
update time：2010-9-10