Greater Bay Area Residential Transactions Stabilized in 2H 2024 With Central Government’s Support
Neighborhood Retail Assets and Industrial/Logistics Sector Gain Investors’ Interest
- Since the Politburo's emphasis in its September 2024 meeting that authorities "must work to halt the real estate market decline and spur a stable recovery," Chinese mainland residential market sentiment has strengthened significantly, supporting a pick-up in primary market home sales
- Total investment volume in the Greater Bay Area (GBA) commercial real estate (CRE) market recorded RMB44.7 billion in 2024, accounting for 20% of total Chinese mainland CRE investment volume
- The industrial/ logistics sector became sought-after, accounting for 22% of total investment volume in the GBA, with transaction activity in second-tier GBA cities performing notably well
GBA Residential Market
Overall GBA residential market sentiment remained cautious in the first half of 2024 due to the economic slowdown in the Chinese mainland combined with a lack of confidence in the real estate market. Although overall GBA primary market residential transactions picked up in June following the introduction of the "517" new housing policies, the market then gradually digested the favorable impact in the subsequent months, failing to bring a sustained stimulus to residential transactions.
In late September, the Central Government then emphasized at the Politburo meeting that authorities "must work to halt the real estate market decline and spur a stable recovery". Unlike the "517" new housing policies, which mainly targeted the demand side, this time the policies were designed to stimulate the market from both the demand and supply sides. The Central Government also introduced real estate measures summarized as "four cancellations, four reductions, and two additions," aimed at lowering the cost of entry for buyers,and boosting the market's confidence in developers' capital flow by encouraging local governments to use funds from special-purpose bonds to reclaim and acquire idle land and unsold units. Since October, the residential market has become more active, with transaction numbers picking up significantly. Around 40,000 transactions were recorded in the GBA primary residential market in October, growing 70% m-o-m. Transactions through Q4 showed a strong recovery, growing 42% y-o-y and 72% q-o-q, with new home sales in Shenzhen and Guangzhou surging 165% and 72% respectively over the same period last year. These figures reflect that with the support of favorable policies, residential transaction activity in the Greater Bay Area is gradually recovering. Although total primary market transactions for the full-year 2024 reached approximately 318,000 units, a 16% y-o-y drop from 2023, the decline was concentrated in the first three quarters. (Chart 1).
Chart 1: GBA First-Hand Residential Sales
Primary market home prices are more swayed by the quality level of newly launched projects, and first-hand residential prices in the nine GBA Chinese mainland cities showed a mixed trend in 2H 2024. Secondary market home prices generally better reflect current underlying trends, and National Bureau of Statistics data shows that Shenzhen secondary home prices had been in a correction of -9.2% for the first nine months of 2024. However, since the Central Government introduced a series of stimulus measures for the real estate market in September and October, in particular the special-purpose bonds to improve developers' cash flow, the sales price index of secondary market residential buildings in Shenzhen has stabilized, with m-o-m increases of 0.7% in October and 0.5% in November. We expect the price index in December to record similar growth to November, narrowing the annual decline to 7.7% (Chart 2).
Chart 2: Change in Shenzhen Secondary Home Price Index
Alva To, Cushman & Wakefield's Vice President, Greater China & Head of Consulting, Greater China said, "In reviewing the easing policies introduced in 2H 2024, the Central Government has not only stimulated housing demand but also strived to stabilize supply. Among the measures, we believe the policy of encouraging local governments to use funds from special-purpose bonds to reclaim and acquire idle land and unsold units is the most noteworthy. This is expected to help developers improve their cash flow and liquidity, in turn strengthening market's confidence in developers' deliveries, while also ensuring a stable housing supply. Only with the gradual restoration of market confidence can the purchasing power stimulated by easing policies be truly unleashed. Looking ahead to 2025, we believe that the most challenging time is over and that the property market is now gradually stabilizing with the support of the Central Government's policies. With the support of favorable policies, transaction numbers are likely to be maintained at the current level. We forecast that total first-hand residential transactions in the GBA will increase by 20% to around 380,000 units in 2025, supporting the gradual recovery of home prices."
GBA CRE Investment Market
Charli Chan, Cushman & Wakefield's Deputy Managing Director, Head of HK PRC Team, Capital Markets, said, "After significant downward asset price adjustments in the middle of the year, the GBA CRE investment market began to show a trend of stable recovery trend from Q4 2024. The GBA CRE investment market (large-sized deals at RMB100 million or above) recorded 66 deals totaling RMB44.7 billion for the full-year 2024, decreasing 9% y-o-y, accounting for 20% of the overall Chinese mainland investment market (Chart 3). Of the 66 large-sized deals, 15 were above the RMB1 billion mark, accounting for 23% of the total number of transactions, up from 20% in 2023. The GBA commercial property investment market continued to focus on the two first-tier mainland cities, Shenzhen and Guangzhou, recording total transaction volumes of RMB23.9 billion and RMB14.6 billion, respectively.
By property type, the office/R&D office sector continued to take the largest share of the market, accounting for more than half of the total investment volume for 2024. The share of the industrial/ logistics sector increased notably, from 9% of total investment volume in 2023 to 22% in 2024, chiefly driven by logistics demand spurred by cross-border e-commerce activities (Chart 4). This trend is also in line with the firm's forecast six months ago.
Chart 4: Total CRE Investment Volume in the GBA by Property Type
Charli Chan added, "Looking ahead to 2025, investors are likely to remain cautious in the current market conditions. The abundant new supply of industrial, logistics, and office premises, combined with relatively few buyers in the market, is going to lead to increased competition, bringing downward pressure on property prices. However, the low interest rate environment in the Chinese mainland, and with further rate cuts anticipated, is expected to offset the downward pressure to a certain extent. Property prices are expected to remain generally stable in 2025.
"In terms of property type, the logistics sector currently remains the top choice for investors. However, Guangdong is facing a supply boom in the coming two years, which may exert pressure on rents. Neighborhood retail assets and community malls are expected to remain sought after, and industrial parks are also attracting greater market attention with the benefit of relatively long-term tenants. Yet, investors are advised to adjust their strategies in a timely manner, considering the effectiveness of the 'Industry's Going Upstairs' (IGU) policy and the actual market situation. Among all asset classes, the office sector has experienced the greatest price pressure. We suggest investors to pay attention to projects held by U.S. dollar funds that are willing to offload assets with price discounts."
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Caption:
Alva To, Cushman & Wakefield's Vice President, Greater China & Head of Consulting, Greater China (Left)
and Charli Chan, Cushman & Wakefield's Deputy Managing Director, Head of HK PRC Team, Capital Markets (Right).
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Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2023, the firm reported revenue of $9.5 billion across its core services of valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.hk or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china).
