Savills World Research

Briefing Residential sector February 2015

Image: Himalaya of Sunshine 100, Nan Bin Road SUMMARY Residential transaction volumes rose for the third consecutive quarter, while average prices continued to fall.

­ As­­ a number of tightening housing ­ Residential transaction volumes policies took effect in 2014, the overall surpassed 5.7million sq m in Q4/2014. “Both supply and transaction Chongqing real estate market has undergone a comprehensive reversal ­ Mass-market residential prices volumes of land supply in in terms of supply and demand, decreased 4.5% quarter-on-quarter witnessing a 10-quarter consecutive (QoQ) to an average of RMB7,200 per Q4/2014 increased, however, fall in prices and less impressive sq m. overall performance was flat.” transaction volumes year-on-year (YoY). ­ In order to meet annual sales Dave Law, Savills Research targets, preferential housing sales ­ Real estate investment reached continued to increase in the last RMB325 billion in November 2014, up quarter, leading to transaction volumes 22.9% YoY. increasing significantly, while prices declined.

savills.com.cn/research 01 Briefing |Chongqing residential sector February 2015

Forecast GRAPH 1 In the coming year, selling inventory Real estate investment YTD, 2005–November, 2014 will remain a priority for most Real estate investment YoY growth developers, who are also expected 400 80% to remain cautious about acquiring new land plots. Meanwhile, as 350 70% Chinese New Year is approaching, 300 60% the market is expected to witness

a flat performance with regards 250 50% to transaction volumes in the first quarter of 2015. 200 40% RMB billion

150 30% Macro market No major policy adjustments in 100 20% Q4/2014 resulted in continued downward market expectations. Sale 50 10% targets fell short of expectations 0 0% for most developers who faced 05 06 07 08 09 10 11 12 13 14YTD

huge financial pressure. This led to Source: Chongqing Statistics Bureau developers accelerating the speed of selling existing stocks, as well as GRAPH 2 the opening of new projects, through Mass-market residential transaction volumes and various discount tools. As a result, average prices, Q2/2010-Q4/2014 transaction volumes recorded a continued increase as average prices Transaction volume (LHS) Average price (RHS) 8 8,000 decreased. 7 7,000 The residential investment market 6 6,000 recorded a steady increase in real RMB per sq m sq per RMB estate investment in Q4/2014, 5 5,000 indicating investor trust in the local 4 4,000 market. million sq m 3 3,000 Land transactions recovered slightly, 2 2,000 with more land supply coming onto the market. However, the majority of 1 1,000

the land plots transacted were small, 0 0 with no large national developers Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 involved. 2010 2011 2012 2013 2014 Source: Savills Research In October 2014, year-to-date (YTD) real estate investment in Chongqing 5.7 million sq m in Q4/2014, down consumers to recommend new reached RMB282 billion, up 21% 14.5% YoY, as the market continued potential clients by rewarding them YoY. In November YTD, the number to be affected by macroeconomics a 5% commission fee on the total reached RMB325 billion, up 22.9% and credit policies. Unsurprisingly, transaction price. As a result, average YoY. Investors’ confidence in the transaction volumes increased prices decreased to RMB7, 292 per Chongqing market remained strong 20.9% QoQ as developers made sq m, down 4.5% QoQ, the biggest despite the slowing residential sales their biggest efforts on discount decrease since Q2/2012. market, leading to a positive trend sales in 2014, leading to the biggest in the market. Main contributors transactions volumes of this year The most transacted of of real estate investment were not occurring in Q4/2014. Additionally, Q4/2014 was Jiulongpo, with over renowned developers, but several apart from traditional methods of 9,000 units and approximately local developers acquired a number sales, some developers adopted 800,000 sq m successfully of land plots, mainly in non-prime several creative sale methods such transacted. Ba’nan and Jiulongpo districts. as “recommendation marketing” also witnessed a strong performance Transaction volumes reached over which encouraged existing this quarter, with over 350,000 sq m

02 Briefing | Chongqing residential sector February 2015

transacted, mainly due to end-user land transactions occurred in Ba’nan more affordable housing price for the demand from workers of the rapidly and Jiulongpo districts. majority of residents. Meanwhile, the developing area. The New North policy also allowed each major city Zone continued to be one of the It is worth mentioning that Avic Real to establish a long-term mechanism most popular districts for consumers, Estate Company made a bid for a for the regulation of the real estate as well as the Shapingba and Nan’an land plot located in market according to different districts. this quarter, marking their first move situations through land regulations, within the Chongqing real estate taxation and financial policies. Several newcomers this quarter, market, for a price of RMB1.2 billion. including Himalaya of Sunshine Due to the limited land supply within In the first half year of 2014, the 100 on Nanbin Road in of Nan’an the district, the AV reached RMB7, Chongqing government tightened the district which recorded the highest 500 per sq m, the highest value of credit policy on house purchases and price city-wide of RMB40,000 per the year. almost stopped accepting housing sq m, increased the overall average funds. In the second half, the housing high-end market price to RMB16,700 2014 overview funds policy was gradually loosened per sq m. However, existing projects Since the end of 2013, the as the government started to allow either recorded a sharp downfall or central government has chosen using diversified housing funds for remained at the same level compared to decentralise its control over purchasing. to last quarter, resulting in prices the national real estate market, a decreasing 3.3% QoQ, echoing the milestone that marked a significant Both the national and local housing general market downturn. change in the real estate market in policies combined directly affected 2014. This policy was mainly aimed the overall performances of the Land market at reducing the level of central real estate market in Chongqing. 41 new land plots were transacted administrative intervention. However, Transaction volumes were in Q4/2014, 22 more than in the last it has placed a greater reliance on significantly decreased compared to quarter, with an accommodation market self-regulation combined 2013 and average prices decreased value (AV) amounting to RMB2, 526 with local government polices based to a more reasonable level. The per sq m, up 19% QoQ. Meanwhile, on the actual situation in their own overall Chongqing real estate market total transaction area reached 337 jurisdiction. The move promoted the has undergone a comprehensive million sq m, up 39% QoQ, mainly diversification of housing supply to reversal quarter by quarter as the due to the weak performance in meet the different needs, in order to housing market witnessed a situation Q3/2014 and a significant increase establish a more reasonable supply- of oversupply for the first time in of land supply in the last month of demand relationship, and thus a almost three years. The reversal Q4/2014.

However, the overall transaction GRAPH 3 area was less impressive compared High-end residential price index, Q1/2012–Q4/2014 to the same time last year, echoing the downturn of the real estate High-end residential price index market in general. Average premium 104 rates reached 10%, a slight increase QoQ, albeit still very low 102 compared to the 40% achieved in Q4/2013. Local developers were

100 active in acquiring land plots. For example, Chongqing Chengtou Real Estate Company acquired six 98 land plots located in Ba’nan and Q1/2011 = 100 Q1/2011 Dadukou districts, becoming the 96 company that acquired the most land in Q4/2014. Conversely, large, 94 nationally-renowned developers such as Longfor and Greenland waited 92 until December to acquire their first Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 land plot of the year, hinting at low 2012 2013 2014 confidence and caution towards the market spilling into next year. Most Source: Savills Research

03 Briefing | Chongqing residential sector February 2015

also resulted in climbing pressure 2014 saw the real estate market in In 2015, the main target for for developers, most of whom were Chongqing wave goodbye to the developers will still be offloading struggling to meet sales targets and golden age of rapid development and inventory as they will want a return adopted numerous discount tools. enter an era of steady growth. from the projects, now completed, that were vacant land plots The land market echoed the situation 2015 Outlook purchased between 2012 and 2013. witnessed in the residential sales In the coming year, macroeconomic This is expected to result in steadily market in 2014, due to limited land development will further slow increasing transaction volumes and supply and major developers taking a alongside a series of monetary a slightly decreasing price, similar ‘wait and see’ attitude, being cautious policies attempting to stimulate to that seen in the last two quarters about acquiring new land plots. Yubei the economy and real estate of 2014. The Liangjiang New Area, and the New North Zone were the two market. There is a high possibility Jiulongpo and Ba’nan are expected most transacted areas in 2014 due of decreasing interest rates in 2015 to generate more attention as central to matured infrastructure and living to stimulate consumption. In terms points of numerous new projects in atmosphere; emerging districts such of housing policy, administrative the coming quarters. as Shapingba, Jiulongpo and Ba’nan measures such as purchase and loan also witnessed strong performances. limitations will be gradually dropped Land supply and transactions are The most transacted land plots were and instead, a self-regulated market expected to remain stable. In the located in Jiulongpo and Ba’nan, will be gradually formed and a long run, with less vacant land plots further demonstrating the rapid long-term mechanism for real estate being acquired, the amount of new expansion of the city. regulation will be the main measure projects will decrease significantly for most of the major cities, including after the selling of current inventory, Although real estate investment Chongqing. As a result, the supply resulting in a more balanced supply recorded a steady growth QoQ, and demand of the real estate market and demand.  the overall rate was not as large as in Chongqing is expected to increase previous years, mirroring the current further at a reasonable rate with market situation and demonstrating steady average prices. a cautious, yet more reasonable, investment pattern among investors.

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