Building more top cities
China’s new rental housing policy shifts gears from taming prices to pro-growth. The race is on for tier-2 cities to build affordable high-quality housing to lure and retain young professionals. This will enhance these cities’ competiveness and draw in quality corporations, thus playing to Beijing’s endgame of economic capacity expansion.
Tenants with talent
China’s rental housing policy is less about housing than expanding economic capacity. Second-tier cities looking to move up the value chain via a talented workforce are pedalling fast to attract 2017’s eight million university graduates who now qualify for urban hukou permits under relaxed criteria. This will drive up income growth in these cities and boost property prices when young professionals mature into home-buyers.
Prices can only go up
Tightening used to pose both price and operational risk to Chinese developers. But not anymore. With three years of land undersupply and accelerating income growth, we expect property prices to enjoy a 10% Cagr in the next five years – not just in tier-1, but also tier-2 and top tier-3 cities.
Pay for scale or the model?
China’s property development industry has transformed. Lower price risk and high land prices have led to a focus on scale. If price declines are unlikely, then having better scale means better earnings. Players also enjoy cost advantages through joint-ventures with other scaleable players in land tenders to squeeze out competitors.
Hong Kong – How to dine free for 100 years
Hong Kong’s rate of new housing supply is less than 1%. This is making the opinion and affordability of 99% of the city’s residents irrelevant and widening the wealth gap. In fact, price appreciation has been so high in the past five years, a 500sf Taikoo Shing apartment has gone up enough to pay for dinner at Café de Coral every day for over 100 years. The only way out is to accelerate farmland conversion.
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