More Local Developers And Institutional Investors Are Focusing ...
In the residential market, developing and selling property at the unit level has been the key strategy for most local developers in China; only very few of them have used leasing as a long-term strategy in the past two decades. However, with home purchase restrictions firmly in place since early 2011, I have received an increasing number of requests for studies on the dynamics of the Beijing serviced apartment market, especially over the second half of 2012.
Throughout my more than a decade of work experience in real estate, I have witnessed remarkable price growth in the Beijing residential market, with capital values of high-end apartments tripling since end-2001. Rental growth has been more moderate but average rents of Beijing serviced apartments increased by 30% over the last 24 months to record a historic high of RMB 205 per sqm pm in 3Q12. As there were few new serviced apartments launched to the market after the 2008 Olympic Games, most owners have been benefiting from continuing rental increases and occupancy rates.
Strong demand for Beijing?s for high-end serviced apartments is partly due to the expanding presence of MNCs in China, evidenced by more foreign senior managers and expatriates who were sent to Beijing to oversee new project development and business cooperation with local partners over the past four years. Moreover, demand has been further bolstered by rising corporate housing needs from local companies, especially in areas where tenancies are dominated by employees of SOEs, including the East Second Ring Road and Finance Street submarkets.
The stock of Beijing serviced apartments for rental has been relatively stable in the last few years, as many developers preferred to sell their projects strata-title. More recently, however, some developers are starting to consider investing as a long-term strategy, as evidenced by two new projects being launched to the market in the third quarter this year, and another one to be completed in the first quarter of 2013. In addition to projects by more prestigious operators that target expatriates, some middle-end projects are targeting white collar workers that come to work in Beijing from other provinces, a trend which has been emerging in recent quarters.
Investors and developers are expected to expand their leasing business across the city in the next two years, especially as the government?s sale restrictions are likely to remain in place at least until 2014. As China?s economic growth is expected to pick up from next year, Beijing should attract more workers both from overseas and other provinces, which will provide solid demand for the residential leasing market. Thus, the investment prospects of single ownership serviced apartments should remain promising from a landlord?s perspective.
About the author
Meggie Qin is the Head of Research for Jones Lang LaSalle in Beijing.
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