In this episode of China Money Podcast, guest David Ji, head of research and consultancy of Greater China at property advisory firm Knight Frank talks to our host Nina Xiang about where the Chinese property market is in its current market cycle and how China's ghost cities could be revived.
Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an interview excerpt.
Q: The Chinese real estate market has recovered somewhat after the government's loosening policies. Where do you think the market is in its current cycle?
Q: In the past when government imposed housing purchasing restrictions, it took four to five years for the prices to come down. I would imagine the current encouraging policies would take some time. The market is stabilizing, but is still in an early recovery stage.
Q: Do you agree with the view that the Chinese property market is in a paradigm change, and may go into a prolonged slump?
A: Well, I'm not sure about that. But I do believe that the government intervention driving market dynamics in the past will not last very long. They need to establish market mechanisms including relevant laws and property tax to drive the market going forward.
Q: For long-term institutional investors, where do you still see attractive opportunities? Logistics and warehouses are obviously investors' favorite right now. Carlyle, Warburg Pincus and Boyu Capital have all made investments in this sector lately.
A: Yes, I was going to say logistics. Elsewhere, we have seen investors achieving various degrees of success in the office market and retail sector.
But in general, anything to do with China's transition to a new economic growth model is good. That could be e-commerce related real estate, infrastructure that drives China's new economy, or office market geared towards new and innovative industries.
Q: How about in terms of geography, should investors still focus on tier one cities?
A: We used to favor second-tier cities over first-tier cities because of their high growth rate. But investors now realize quality of the property is far more important than growth.
Even major second-tier cities, such as Hangzhou and Tianjin, are not necessarily as attractive in terms of risk and return as first-tier cities, especially Beijing and Shanghai.
Q: What's your outlook for the commercial and office market?
A: The commercial market has been quiet for some time, but should be stable going forward. The office market is pretty much driven by supply and demand. In some places such as Shanghai's Lujiazui, there is still a lack of quality supply.
Q: How about the residential market?
A: It's slowly recovering. Given the recent turmoil in the stock market, lots of investors believe residential properties are still a safer bet. So we are not too worried about a lack of investment in the residential market. We will still see some growth even if it has been slow at the moment.
My take on the surplus supply or ghost cities is that it is not a problem of the amount of apartments being released into the market. It is a rather a problem of the mis-location of these supplies.
There are a lot of supplies in very remote areas or lower-tier cities where there is no infrastructure or enough demand. Once some infrastructure is put in place, we could see some ghost cities become revived.
About David Ji:
David Ji is the director, head of research and consultancy of Greater China at global property consultancy Knight Frank. He has more than 18 years of research and consultancy experience, having previously worked at Ernst & Young and DTZ, serving various research and advisory leadership roles.
