By Petra Blazkova on December 12th, 2018
China’s developers are showing signs of slowing their investment strategies after years of rampant growth amid a debt clampdown by the Chinese government. Land sales in Asia Pacific’s largest commercial real estate investment market have also started to decline.
Developers dominate commercial real estate activity in China. Led by China Vanke, China Poly Group, Country Garden, Greenland Group and Evergrande, the top 25 developers accounted for nearly one-third of the investment market (comprising both development sites and income-producing properties) over the last year, up from less than one-fifth in 2011.
Real Capital Analytics data indicates that listed developers’ acquisitions of both income-producing properties and development sites declined by 56% in the third quarter from a historic peak a year ago. Activity by private developers increased in the quarter from a year prior, but it is down 23% since the peak at the end of 2017.
Development site sales fell 8% year-over-year to reach $161.4 billion in the third quarter of 2018, marking the first annual decline since 2015. Sales of land dwarf those of income-producing properties: these totaled $4.4 billion last quarter.
As well as the government’s tightening of lending rules, developers are facing rapidly accelerating prices across Tier 1 cities. Shanghai and Beijing recorded 240% growth in land prices over the last decade, while Shenzhen and Guangzhou land prices accelerated by 180% over the same period, according to Real Capital Analytics data.
Weakening economic growth, the tariff tussle with the U.S., and rattled domestic stock markets are contributing to the negative backdrop. China reported annual GDP growth of 6.5% in Q3’18, the weakest level since the Global Financial Crisis. To boot, the renminbi is teetering near its lowest level in a decade versus the dollar.
Developers can help contribute to a sustainable development market in China by potentially moderating their land acquisitions which may help prevent further astronomic price increases.