According to Knight Franks' latest research report, the combined effects of stringent housing regulations and the sovereign debt crises in Europe and the US, during the traditional slow season of Chinese New Year, led to a drop in the volume of home-sale transactions in the first quarter, with Mainland residents preferring to adopt a wait-and-see attitude. Shanghai, Beijing and Guangzhou’s home prices and sales drop quarter on quarter.
Mr Thomas Lam Ho Man, Director of Research and Consultancy at Knight Frank in Greater China, comments “with a slower economic growth, we expect Shanghai, Beijing and Guangzhou’s luxury residential prices to continue to edge down slightly in the second quarter. Besides, if sales remain weak in the second quarter and banks do not relax credit, developers will face increased funding pressure and will have to cut prices to boost sales or sell projects to other companies in an attempt to reduce their debt ratios. Small to medium-sized developers which are poorly managed may find themselves exposed to the threat of mergers and acquisitions or liquidation.”
In the first quarter of 2012, the performance of Shanghai’s luxury residential market was sluggish, with the average home price falling to RMB48,660 per sq m. Meanwhile, the luxury leasing market was strong. The average monthly rent rose 3.5% quarter on quarter to RMB171.2 per sq m, while occupancy rates remained at 88.5%.
During the traditional low season of Chinese New Year, only two projects received presale consent in the first quarter, providing a total of 96 luxury units in Beijing. 416 primary luxury units were transacted in the quarter—a 36% quarter-on-quarter decrease and a new low since the financial crisis began in 2008. Prices also dropped 1.2% from the previous quarter. The debt crises in Europe and the US have forced many multinational firms and institutions to reduce their number of expatriate staff and accommodation budgets. Demand from expatriates fell and the average monthly rent of luxury projects dropped 1.6% quarter on quarter to RMB143.9 per sq m.
Guangzhou’s luxury residential market was quiet in the first quarter. Though the supply of luxury residential projects increased 13.4% from the previous quarter, transaction volume fell 39.3%, due to weak market demand. Luxury home prices dropped 0.4% quarter on quarter to RMB30,100 per sq m in the first quarter, while the average monthly rent rose 2.0%.