It is sometimes difficult to get an angle on the Chinese real estate market because there are so many contradicting headlines. On one hand we have domestic investors looking elsewhere, such as London, while on the other hand prices in some of China’s more prominent cities continue to go from strength to strength. So, how are Chinese luxury real estate prices topping the charts?
Chinese luxury real estate
A wealth report by Knight Frank has confirmed China’s position as the top performing luxury real estate market in 2016. As we touched on above, this will surprise many people because there have been some very negative headlines about the country and the way in which the Chinese real estate market is apparently being manipulated. So, which markets performed best and why?
Shanghai has always been there or thereabouts as one of the most expensive cities in the world in which to live. Prime property in Shanghai increased by a phenomenal 27.4% in 2016 this despite the apparent doom and gloom surrounding the country.
It was interesting to see Beijing not too far behind with an increase of 26.8% during 2016. Shanghai and Beijing are probably the two most recognised cities when it comes to international investors therefore perhaps it was obvious they would perform well.
While Guangzhou is one of those cities we have all heard of, how many of us have actually looked at the Guangzhou real estate market in great detail? If you learned that prices increased by 26.6% in 2016 perhaps it would prompt you to take a look?
Why is Chinese luxury real estate so strong?
Despite all the doom and gloom, the Chinese economy is still growing, there is increasing demand for real estate and perhaps more importantly there is relatively low supply in some areas. In all honesty this lack of supply is probably exaggerating price movements and surely developers will fill this gap at some point?
It is also interesting to learn that while Chinese luxury real estate is very strong there would appear to be a number of reasons why competing markets have weakened. The Knight Frank report confirms that former top-ranked city Vancouver has now fallen to 7th place after introducing a 15% tax on foreign buyers. The London market has been impacted by increased costs with stamp duty for non-primary houses having been marked up significantly by the government. There have also been issues with former favourite New York City with the strong dollar and an abundance of luxury condos limiting property price increases.
What does the future hold?
Of the markets covered above, London is perhaps the most interesting with currency weakness prompting some overseas buyers to look again not to mention the potential benefits of the Brexit vote. There may well be potential for New York City to fall back into line if Donald Trump gets his way and is able to devalue the currency in the future – although the Fed would appear to have different plans. The situation with Vancouver is unlikely to change in the short to medium term as there was criticism about the number of overseas investors allegedly pushing property prices higher. The introduction of a 15% tax on foreign buyers will likely have gone down well with domestic voters but what does it say to international investors?