Tech to drive city core office demand

Kirk Kuester
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Office/commercial

With just over 1.7 million square feet of office space entering the Vancouver market in 2015, several new buildings were added to the skyline, including MNP Tower, Telus Garden, 980 Howe and 745 Thurlow. This new addition of space has been highly coveted by tenants looking to upgrade and improve efficiencies, explore new ways of working and, in some cases, possibly expand. We expect this occupier trend of “flight-to-quality” to continue through 2016, while landlords of Class A and B buildings will rely heavily on creative solutions to keep occupancy levels high.

Another noticeable office market trend is the revival of strata developments. While these assets have been historically tailored to medical tenants, the low interest rate environment and strong capital appreciation in commercial real estate have driven demand toward ownership, rather than leasing. Strata office will continue to shape the market for professional services and medical occupiers, as well as intrigue other occupiers, such as technology and digital media firms.

The office sector has seen a surge of demand with the technology and digital media industries, as well as consumer goods. The technology and digital sector has consistently accounted for the highest percentage of demand, averaging 36% of total demand between 2013 and 2015. We expect demand to remain strong in this industry, particularly if the Canadian dollar remains low. As well, firms from the United States and abroad see Vancouver as a gateway to the Canadian market, taking advantage of our strong talent pool and lifestyle opportunities.

 

Industrial

A strong economy and a low Canadian dollar are also major driving forces for the Metro Vancouver industrial market. Consistently robust market fundamentals have led to low vacancies, solid capital appreciation and modest cash flow growth through increasing lease rates. In 2016, we expect demand to continue to outweigh supply, particularly in cities that are land-constrained or experiencing a shortage of industrial-zoned land.

The low supply of industrial land and high land and construction costs, combined with high tenant and investor demand, have increased industrial ceiling heights. While our research has shown that users prefer 30- to 32-foot-clear ceilings, expanding building heights on smaller parcels of land is becoming a necessity and a financially viable alternative for developers facing high land costs. This trend will become more apparent in 2016.

Another result of high land and construction costs has been increased demand for ownership from end users, which has fuelled the development of industrial strata projects. This presents an opportunity for developers to earn an immediate return on investment, supplementing high upfront capital costs. This, in turn, provides an opportunity for end users to buy product at a low interest rate, resulting in a cash outlay competitive to leasing.

 

Retail

The intertwining of retail and industrial assets is increasing as most retailers move to an omni-channel strategy. With many big brand retailers competing to absorb space around dense, urbanized, transit-oriented centres, finding a balance between location and logistics will become a challenge. As more retailers compete to offer same-day deliveries, the challenge will be to acquire industrial space with features such as high ceilings, ample parking and a sufficient truck-turning radius, all in a location close to urbanized areas.

While retailers continue to move online, vacancy rates in Metro Vancouver continue to decline, particularly in areas with high-density, mixed-use developments. We’ve seen large, master-planned developments pre-lease retail space in record time. Demand for retail strata has also been extraordinary, selling at more than $1,000 per square foot. We expect to see more demand along major corridors as municipal policies transform the streetscape and competition increases among major mixed-use developments.

 

Investment/land

The Vancouver land market continues to be extremely competitive despite the huge increase in land values and construction costs. Recent transactions around the downtown core have set a price per buildable square foot in the mid-$400s, highlighting strong investor and developer desire to place capital in a supply-constrained market. More generally, with a low Canadian dollar and low interest rates and bond yields, we expect 2016 to be a very competitive market as local and international investors seek product with modest yield and development potential.

Investment in commercial real estate will continue to focus around areas where municipalities encourage high density developments.

On the residential side, we expect condominium values to increase alongside rising land prices and construction costs.

 

Hotel

Historically, the resilient Canadian residential markets have helped fuel urban hotel sales for redevelopment or re-use as condos and apartments. While that trend has somewhat tapered, hotel buyers today are largely motivated by the underlying land value in major cities and are driven by an increasing appetite for large, full-services assets. This was best demonstrated by the sale of the Westin Bayshore in Vancouver’s West End. Given the compression of cap rates across other assets, hotel sale activity is expected to continue in 2016, driven by demand from non-traditional and traditional hotel owners. 

 

 

David Goodman, Principal, HQ Commercial Realty and founder, the Goodman Report

 

Residential/apartments

Investors local, national and worldwide will continue to flock to Metro Vancouver’s rental apartment asset class. Housing is chronically undersupplied in our region. For 2016, expect to see more than 200 transactions amounting to between $1.5 billion and $2 billion in total sales.

We are in the midst of a hyper-competitive environment with investors experiencing extreme shortages of multi-family development sites.

A new source of sites has been added to the development landscape throughout the province. New strata termination legislation approved by the provincial government last November and expected to take effect in early 2016 will allow strata owners to terminate a strata corporation with an 80% vote of owners instead of the previous 100% requirement.

There is significant interest in older strata buildings, particularly in Greater Vancouver, being targeted for land value by the development community. The residual land value of these properties for development, in some instances, far exceeds the break-up value as a condo or co-op, resulting in a huge tax-free windfall for the owners of suites. For the developers, it’s a virtual godsend because overnight they’ve acquired access to prime sites historically off-limits.

 

Metro Vancouver housing

Led by Don Littleford, director of housing for Metro Vancouver, the Metro 2040 forecast indicates that we require 18,500 units per year over the next 10 years. Making up this yearly figure, 12,000 households are expected to buy, leaving 6,500 new rental housing units required each year for the next 10 years. Of these, two-thirds will be for low- and moderate-income households, or 4,700 units per year, the remaining demand of 1,800 units per year is for moderate- and higher-income households who can afford to pay market rents.

 

Developers shift strategy

Of late, we’ve encountered a growing trend among Lower Mainland developers and investors who had initially contemplated building condos revisiting their business plans to instead explore the viability of rental options.

The primary catalyst for this profound change in attitude are the factors contributing to the lower financial risk. Lenders are now far more eager to fund new rental project construction. They are keenly aware that there is a strong pool of tenants and investors anxious to either live in or buy rarely available new housing stock, devoid of the all-too-common maintenance and obsolescence problems. Additionally, Canada Mortgage and Housing Corp. (CMHC) insurance for rental apartment construction has made rental housing financing safer for lenders uneasy about how the property market will react to concerns about the Canadian economy in 2016.

Developers switching to rentals can forgo a costly presale program, avoid intense competition, and one would hope receive further municipal incentives for their rental initiative, such as reduced parking requirements, height and density bonuses and waived development cost levies.

 

New rentals

Building new rental properties in the Lower Mainland is a formidable task. With the absence of any federal or provincial tax breaks, the advent of high land and construction costs, municipal add-on charges, well-documented red tape and related processing delays, zoning and social engineering issues, a project from inception to completion can take up to five years.

While new rental supply of any stripe is generally welcome, the emphasis, particularly in Vancouver, has been on promoting and creating affordable/social housing rather than more upscale projects.

A spectacular departure has been Westbank’s recent completion of the West End’s Lauren at 1051 Broughton. It’s one of the first new highrise luxury market rental buildings in many years. It consists of 180 suites made up of junior one-bedroom, regular one-bedroom and two-bedroom units. Not only have tenants embraced this welcome new addition to Vancouver’s sophisticated market, but so should Vancouver’s development community. The numbers are compelling.

The juniors, averaging 420 square feet, are getting $4.61 a square foot (approximately $1,925 a month), the regular one-bedroom, averaging 501 square feet, is receiving $4.08 a square foot (approximately $2,045 a month) and the two-bedroom units, averaging 762 square feet, are renting at approximately $3.25-plus a square foot (over $2,300 a month depending on the floor level). The lesson here: build a well-designed, efficient building with sufficient density in the right location and, presto, the numbers make sense.

Copyright © 2016 Colliers International Canada

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Canadian housing starts closed the year down close to 20 per cent, falling from 212,028 units at a seasonally adjusted annual rate (SAAR) in November to 172,965 units SAAR in December.  The six-month trend in Canadian housing starts of 203,500 units SAAR was also down. For the year 2015,  total Canadian housing starts were up 6 per cent over 2014.  Large declines in oil-producing provinces such as Alberta, Saskatchewan and Newfoundland were largely offset by strong new home construction in BC and Ontario. 

Housing starts in BC rebounded in December, rising 26 per cent to 33,346 units SAAR.  On a year-over-year basis, housing starts were up 15 per cent, led by a 22 per cent increase in multiple unit starts which offset a 3 per cent decline in single detached starts. For the year 2015, total housing starts in BC increased 12 per cent compared to 2014. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 20 per cent year-over-year in December due to a 27 per cent jump in multiple starts. For all of 2015,  Vancouver CMA new home construction rose 9 per cent, finishing the year at 20,863 total starts.  In the Victoria CMA, housing starts more than doubled compared to December 2014, with strong gains in both single and multiple starts. For all of 2015, Victoria CMA starts increased 53 per cent to 2,008 total starts. Home construction in the Kelowna CMA closed the year down, falling 44 per cent year-over-year. For all of 2015, total housing starts dipped slightly, falling 2 per cent to 1,280 total starts.  Housing starts in the Abbotsford-Mission CMA were up 21 per cent to finish the year and were 62 per cent higher for all of 2015 at 806 total starts. 

Copyright ©2016 BCREA

Justin da Rosa
Other

One market’s woes could mean good fortune for investor’s in another major market, according to one industry veteran.

Real estate professionals are bullish on the Toronto market for investors this year, as savvy buyers could cash in on troubling times in western Canada.

“Toronto will definitely be a good spot for investors this year; I was just talking with a broker from another office about this and we think many people who currently live in Alberta will look to move to Toronto,” Ira Jelenik, an agent in Toronto, told REP. “A lot of those people will look to the rental market and prices in both freehold and condos will go up this year.”

That potential influx would just add to the always growing number of Torontonians.

“Along with immigration, a lot of people will be migrating from other provinces,” Jelenik said. The oil industry taking its fair share of beatings last year, with many people out of work and struggling to cover the cost of rent or mortgage. The trend is expected to continue – and its one that has had a very real impact on the real estate industry.

In late November it was reported that agents in Fort McMurray were leaving the city in droves. Phil Soper, chief executive officer of Royal LePage Real Estate Services, told the National Post at the time that Fort-McMurray based agents are leaving the area in hopes of taking advantage of markets that haven’t been hit as hard as the capital of oil country.

“Our offices in Edmonton are experiencing a transfer of agents from Fort McMurray and you’d expect that, because the region is experiencing the most severe change in economic fortune in Canada in years,” Soper told the Post.

Copyright © 2016 Key Media Pty Ltd

Chuck Chiang
The Vancouver Sun

The stock market upheaval in China this week could convince Chinese investors to move their money into assets not linked to the renminbi currency, including B.C. real estate, in even greater volumes, according to a Canadian economist.

But Scotiabank Economics vice-president Derek Holt also cautions that there is considerable uncertainly regarding how Beijing will proceed with devaluing its currency in a bid to make the renminbi more market-driven. Some options could have adverse effects on the local housing market.

Chinese stock markets opened 2016 with four straight days of losses, several of which were so dramatic that a “circuit-breaker” was triggered when the main index dropped more than seven per cent.

On Thursday, Beijing also further devalued the renminbi against the U.S. dollar by 0.51 per cent, which added to the extended sell-off, Holt said.

“When you are a saver in China and you see that your government is trying to make exports more competitive and creating more balance in the economy, it’s natural for you to say, ‘Oh my God, I need to get my savings out and protect my family,’” he said. “And I think it’s that rush-for-the-exits, the large pickups in capital flows out of China, that’s indicative of what’s happening.”

Holt noted that Chinese investors will likely look to the U.S. dollar as a main investment instrument, but he noted the Canadian dollar’s persistent weakness has also made real estate in Vancouver more attractive.

“Canadian real estate … because our own currency has depreciated so much … that has put Canadian assets on sale from the vantage point of, say, Asian investors,” Holt said. “If we judge Vancouver and Toronto in that context, it’s not cheap for us here in Canada … but in the context of other Pacific-Rim cities like San Francisco or Singapore, and given our currency depreciation and what you can buy cashing in on foreign currencies, we look pretty cheap right now.”

TD Economics senior economist Leslie Preston said it is difficult to say if the market panic will lead to more Chinese money coming to Canada, given the lack of data tracking the exact impact of Asian buyers on B.C.’s housing prices.

But she said the upheaval has already hit Canada, noting that the TSX has dropped about five per cent this week because of events in China and falling oil prices.

“I think we’ve already seen it spill over to equity markets elsewhere in the world,” Preston said. “We’ve seen oil head lower this week, which is very important for Canadian equity. So to that extent, we’ve already seen it in the Canadian markets.”

But Preston said Beijing has some controls in place to prevent capital moving offshore, which will limit the number of buyers driven to the Canadian market. And she stressed that a TD Economics forecast for a slower Chinese economy — with a 6.2-per-cent annual growth rate for 2016 — has not changed in light of this week’s developments.

“China is slowing, we’ve known that for a number of years, and we haven’t seen any data that would lead us to downgrade our outlook further,” Preston said. “I think it’s important to take a step back and remember that financial markets are always a lot more volatile than the underlying economies. Financial markets are by their nature very, very volatile, and if you take a look at China, there hasn’t been a lot of new news out about the state of the economy.”

Andreas Schotter, a professor of international business at the Ivey Business School at the University of Western Ontario, said the Chinese stock market malaise is being driven by the fact that individuals make up 80 per cent of investors, meaning volatility tends to be higher in comparison to markets where institutional investors are more prominent.

Schotter said that the “circuit-breaker” mechanism may itself have contributed to the problems this week, setting off a panic.

“The ‘circuit breaker’ is also being used by the S&P 500, but only at the 20-per-cent drop level,” he said, noting the seven-per-cent limit may be too low for Shanghai. “Until more institutional investors participate in the market, I do not see that the Chinese ‘circuit breaker’ makes much sense. In fact, instead of reducing panic in the market, it triggers a massive sell-off once it is lifted.”

Schotter also agreed that more Chinese investors may be looking to protect their money by purchasing assets in Canada and other foreign markets.

“I think ‘exodus’ is too harsh of a word, but for sure, investors will try to balance their portfolios more away from the renminbi,” he said, while also noting any expectations of a huge wave of overseas investment should be tempered. “For the average individual investor in China, (getting money out) is not as easy as it is for a Canadian investor in Canada. (But) for those who are able to move money out of China, Vancouver and other metropolitan real estate in Canada remain very attractive, particular right now with an undervalued loonie.”

Holt said that, while uncertainty in Shanghai may drive some money into Vancouver’s real estate market, Beijing has a number of options to further devalue the renminbi and spur exports. One of those, he noted, is a one-time, large-scale devaluation similar to the one in Argentina in 2002, when the peso lost considerable value within days of being de-pegged from the U.S. dollar.

While he said there are no signs that Chinese regulators will take such a step, the uncertainty is not helped by current measures, which Holt called “somewhat flawed” and “opaque.”

“If you do a large, sudden devaluation (of the renminbi), then what happens?” he said. “And you’d probably accompany that with stricter capital controls to prevent people from getting around it in the short term. What that does is it wipes out, with one swift stroke of the pen, a fair portion of Chinese household savings. And what is driving foreign appetite for real estate abroad, including markets like Vancouver? Those household savings.”

© Copyright (c) The Vancouver Sun

Steve Randall
Other

The Toronto Real Estate Board reported its second best sales for December in 2015, which completed a record breaking year for the region’s realtors. MLS sales in the GTA of 4,945 in December took the year’s total to 101,299, a rise of 9.2 per cent over 2014. All major home types saw increases and TREB president Mark McLean commented that a strong overall economy and low mortgage rates encouraged existing and first-time buyers to buy, confident of affordability. He said that inventory restricted sales though: “If the market had benefitted from more listings, the 2015 sales total would have been greater. As it stands, we begin 2016 with a substantial amount of pent-up demand.”

The average selling price for 2015 as a whole was $622,217 – up 9.8 per cent compared to $566,624 in 2014. Low rise homes were the driver of the price rises but condos also gained by above-inflation amounts. “Despite stricter mortgage lending guidelines and the possibility of slightly higher borrowing costs, on average, there will be many buyers who remain upbeat on the purchase of ownership housing,” said Jason Mercer, TREB’s Director of Market Analysis.

Copyright © 2016 Key Media Pty Ltd

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As the average selling price for single-family homes in Vancouver surpasses $2.5 million, the provincial government moved Tuesday to ensure residents with property assessed at less than half that amount are eligible for homeowner grants.

Finance Minister Mike de Jong said the skyrocketing price of some B.C. homes prompted the government to boost the threshold for those eligible for the $570 homeowners grant to $1.2 million.

De Jong said the increase from $1.1 million means 91 per cent of B.C. property owners remain eligible to claim the grant that cuts their annual property tax bill.

The announcement comes as annual property assessments arrive in the mail and many, particularly in Metro Vancouver, reveal dramatic increases in property values.

B.C.’s most expensive home is assessed at almost $64 million and belongs to Lululemon clothing founder Chip Wilson. The Vancouver home’s assessed value increased almost 11 per cent from last year.

The recent BC Assessment figures indicate assessed values of detached urban homes in Metro Vancouver have increased between 15 per cent and 30 per cent over the past year.

Assessed property values have jumped in other areas of the province, with increases of almost five per cent in Victoria and nearing eight per cent in Kelowna, but no community came near the double-digit increases in Metro Vancouver.

In the northeastern B.C. mining town of Tumbler Ridge, assessed property values plummeted more than 36 per cent.

De Jong said rising property assessments are generally positive developments for homeowners who are realizing increases in their equity.

“The fact that people’s net worth and the value of the equity in their home is going up is a nice problem to have,” he said. “I haven’t met too many homeowners saying, ‘I’m offended because I have an extra $200,000 in equity in my home.'”

De Jong downplayed fears of homeowners facing huge tax bills tied to their increased property values, saying local governments set rates, and assessment increases do not necessarily signal coinciding tax hikes.

He added the government has tax deferment programs for seniors or others facing higher costs. Homeowners whose principal residences are valued above $1.2 million are still eligible to receive a portion of the $570 grant.

Vancouver Mayor Gregor Robertson said in a statement that the latest assessment numbers reveal the alarming difference between the city’s property values and incomes. Robertson called for bold action by the B.C. and federal governments to make housing more affordable.

“Far too many families on modest incomes cannot afford to live in our city or even in this region, which has enormous consequences for Vancouver’s economy and quality of life,” said Robertson.

The statement said the average selling price of a detached home in Vancouver “has surpassed $2.5 million.”

Economist Bryan Yu, at B.C.’s Central 1 Credit Union, said the new grant threshold does capture property values for most British Columbians, but it also signals the death of the single-family home dream for many in Metro Vancouver.

He said most Vancouver-area residents are living in townhomes or condominiums where the average market price is in the $600,000 range.

“Given income levels in the region, they aren’t matching growth in terms of the home values for single-family homes,” Yu said.

© Copyright 2016 Prince George Citizen

Analyst cites trickle-down effect as people flee to suburbs seeking elusive affordable homes

JOANNE LEE-YOUNG
The Vancouver Sun

The average value of detached homes has broken through $1 million in more than 50 additional Metro Vancouver neighbourhoods, 2016 assessment figures show.

“It’s a little, depressed area,” Realtor Jason Weinman said of the Multiple Listing Service-defined zone of Lynnmour on the North Shore. There’s not much to this zone between the end of the Ironworkers Memorial Bridge and Capilano University, long known as one of the most affordable in North Vancouver, he says.

“But with prices going the way they are in the city, it doesn’t shock me,” Weinman said upon hearing the average assessment for a detached home in Lynnmour crossed from $844,531 in 2015 into what used to be defined as luxury territory at $1.02 million.

Property information firm Landcor Data Corp. crunched numbers released by B.C. Assessment Monday and found 53 Multiple Listing Service-defined neighbourhoods are newcomers to the $1 million-plus list, including parts of Burnaby, Coquitlam, Delta, Langley, New Westminster, North Vancouver, Port Moody, Richmond, Surrey and Vancouver.

It’s a significant jump from last year when the list included 124 neighbourhoods.

“Everything up here has been selling for over $1 million in the last 12 months,” says realtor Monet Taylor, who specializes in the Port Moody neighbourhood of Heritage Woods, which crossed the $1 million line with average assessments for homes hitting $1.09 million.

“At the beginning of last year, a smaller, 3,000-square-foot home that I sold (in Heritage Woods) for $965,000, would now be $1.1 million,” says Taylor. “Young families are moving from North Vancouver and Burnaby. They are looking to upgrade from older, smaller homes or from a townhome.”

She suggests homes in nearby Heritage Mountain might still be under $1 million, but the average assessment for 2016 in that area clocked in at $1.1 million, too.

The $1 million mark used to be reserved for describing luxury properties. In more recent years, with more $1 million single-family homes making old definitions meaningless here, Sotheby’s International Realty Canada, which targets the most expensive properties, added to its reports the term “top tier” to distinguish its listings from mere “luxury” ones.

Some economists still hold fast to the idea that rising prices are confined to a few, west side neighbourhoods, but “I think (this idea) is crazy,” says Andrey Pavlov, professor of real estate finance at Simon Fraser University’s Beedie School of Business.

“There’s no reason why areas such as Coquitlam and Port Moody, where there is lots of land and supply of homes, would be rising” to be assessed at over $1 million if there wasn’t this trickle-down effect with buyers either seeking alternative destinations when they are priced out of others areas or taking earnings made from sales in these more expensive areas to spend in others.

At Vancouver City Hall, Mayor Gregor Robertson responded Tuesday to this week’s B.C. Assessment numbers by calling for “bold action from the provincial and federal governments to make housing more affordable.”

The “latest numbers from B.C. Assessment once again demonstrate the stark and alarming ways that our region’s housing market is divorced from local incomes,” said Robertson in a statement. “A speculation tax would help slow the practice of flipping houses, which treats housing as a commodity and intensifies the price escalation. A luxury housing tax would ensure that the very wealthiest buyers or investors pay an added price. Both of these taxes would raise new funds to make housing more affordable for those low and modest incomes.”

For a sense of where such action might take aim, there is, on a very small scale, signs of a new almost-$1 million club to join. Recently, a home at 3302 West 5th Ave. was sold for $802,000 over the asking price 0f $2.49 million and one at 1322 Maple St. for $940,000 over the asking price of $2.93 million.

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© Copyright (c) The Vancouver Sun

We?re almost a week into the brand new year, and 2016 ? the year of the Fire Monkey1 ? will be a year of action, especially for China and the Chinese market.

Juwai
Other

We round up and share 10 hot China trends to watch for in the months to come:

 

#1 6.5% GDP growth – China’s extraordinary ‘new normal’

While the 6.5% GDP increase – or ‘new normal’ – forecast for 2016 looks slower than the 10%-12% growth recorded between 2009 and 2012, let’s put this in perspective: 6.5% growth is the fastest growth outlook of the top five economies in the world.

The net annual increase in China’s GDP (approx. US$720 billion) is about equal to the total GDP of Switzerland, or three times the GDP of Finland – hardly an insignificant performance.

What’s more, most (c.55%) of that extra GDP will come from private consumption in China. With total retail sales worth US$3.6 trillion in 2015 – forecasted to grow 15.6% y-o-y to hit US$4.1 trillion in 2016 – any self-respecting retailer will be looking to make inroads. 

 

#2 China’s hottest export: 139.2 million outbound tourists

Consumer demand is growing so fast that China just can’t contain it. Burgeoning consumer demand and an increasingly globally minded populace saw China became the largest global source of outbound tourists in 2015.

120 million Chinese travelled out of China last year, spending a whopping $229 billion overseas and charting a 19.5% increase y-o-y on the 109 million outbound tourists in 2014.

This growth is set to continue growing. Total tourists and spending are estimated to grow 16% and 21% y-o-y respectively in 2016, which basically adds up to another monster year of 139.2 million projected outbound Chinese travellers!

And this monster spending power of China’s internationally mobile HNWIs, business travellers, and middle-class is having such an impact on travel markets that it’s dominating business class, which is usually the domain of the well-heeled and the high-end.

The Global Business Travel Association Foundation estimates that business class spending by Chinese travellers will increase to $322 billion in 2016 and rise to $420 billion by 2019, overtaking the US market as the largest source of business travel bookings.

 

#3 Domestic upturn = time to cash out and look internationally

With a slew of supportive government measures, forecasters have penciled in 10% growth in domestic property sales in 2016, continuing the recovery in sales that emerged in mid-2015. 

This is good news for developers, no doubt, but it is also good news for mainland property investors looking to buy properties overseas.

Increased market liquidity presents an opportunity to cash out of domestic investments and free up capital to channel overseas into assets, which are more keenly priced.

We’ve previously highlighted the value that overseas properties can offer in terms of pricing, space and facilities, and these attractors, supported by ongoing policy relaxation to ease outbound investment (see below), will likely continue to stoke overseas real estate investment from China in 2015.

 

#4 China’s silver screens worth US$8.2 billion in 2016

Western film companies are starting to wisen up to China’s movie market and, let’s face it, they have 8.2 billion reasons to do so – that’s the amount of revenue (in US dollars) that Citigroup research expects will be spent in mainland box offices in 2016.

That 28% y-o-y increase means China is closing in onto the US – the world’s largest film market, which is expected to see approximately US$11 billion of box office revenue in 2016.

With this huge potential market in mind, Western movie companies have been offering more parts to Chinese actors and actresses, and featuring mainland locations prominently in their biggest recent releases. (Think Transformers 4: Age of Extinction.) Chinese companies are also funneling investment into film studios, with firms such as Dalian Wanda and Hony Capital particularly active.

#5 Overseas education remain a key driver for investor demand

China looks set to retain its place as the world’s largest source of international students in 2016. Competition for top-end positions in China is as fierce as ever¹⁸, and the allure of a Western education abroad remain strong.

An estimated 460,000 mainlanders studied overseas in 2014 alone, up 11% y-o-y compared with 2013.

The Chinese student market is so important that it is being regarded as ‘priority number one’ by Times Higher Education Rankings, with universities bending over backwards to market their courses in China and expand the range of courses on offer to Chinese students.

As such, many governments, including the UK, US, Canada, and South Korea, have moved mountains to make visa processing simpler and more accessible for the thousands of potential Chinese students looking overseas.

Policies such as these, and a strong demand outlook, will likely lend extra support to property investment demand, since Chinese parents prefer setting their children up with their own homes while studying abroad. 

 

#6 Financial sector reforms will open up capital floodgates

As more Chinese companies and citizens look outwards for business and investment opportunities, China’s financial system will be moving to adapt to meet their needs.

Measures such as expanding the Hong Kong-Shanghai Stock Connect, permitting non-residents to issue financial products on domestic markets, and giving foreign investors easier access to China’s capital markets will all feature prominently, as Chinese authorities look to promote full convertibility of the RMB with foreign currencies within the next five year plan.

Simply put, that means removing controls on capital outflows and allowing investors to move their money in and out of China whenever, wherever. That said, smoother processes and relaxed limits will also have big repercussions on the following big trend to take note in 2016.

 

#7 Outbound property investment to soar 50% y-o-y

Chinese companies are slated to ramp up their overseas investments in 2016, and the total investment will likely exceed the US$104 billion recorded up to the end of November 2015.

2015 has seen a marked policy shift, with numerous measures implemented, such as an expansion of QDII quotas and other changes to grease the wheels of outbound investment, and this is only going to expand under the newly-announced 13th Five Year Plan.

Coupled with the financial sector reforms previously discussed in trend #6, plus increasing demand from business and individuals for overseas property investments, it’s likely to be another bumper year of outbound investment.

Colliers International estimates China’s 2015 total outbound investment in property alone totalled US$29 billion, and will increase by 50% y-o-y in 2016. 

#8 China to be closer than ever, with more routes set to open

The Chinese diaspora is set to grow. As China’s populace becomes increasingly internationally-minded and dispersed, airline operators will lay on more connections.

Major airlines – including China Airlines, China Southern Airlines, United Airlines, Singapore Airlines, AirAsia, and Hainan Airlines – are setting up new routes to ferry China’s business and leisure travelers to increasingly diverse locations.

It’s this trend that has seen air traffic doubling at major airports in China like Shanghai’s Pudong Airport, and also is also witnessing rapid growth at emerging hubs, such as Kunming, according to a recent in-depth report by OAG Aviation, an industry consultancy.

What’s important to note is that new routes are not only linking up China with major gateways, such as London and New York, but also with second- and third-tier cities in Europe and North America, such as Budapest²⁹, Birmingham³⁰, and Boston.

This clearly illustrates Chinese investors’ widening horizons as they become tuned into investment opportunities away from more traditional investment hubs. 

 #9 The beautiful game to boom in China

Almost by presidential decree, football – or soccer – is about to become big business in China. President Xi Jinping is an avowed football fan, and away from the dry statements about five year plans, top-level initiatives are being drawn up to boost the development of the game in the mainland.

Government support, plus the prospect of the growth of soccer and the marketing revenue and TV viewers associated with the sport in China, has already sparked huge investments in soccer franchises:

Football fever is driving Chinese investors overseas too – Dalian Wanda scooped up 20% of Atletico Madrid, whilst China Railway bought a stake in Inter Milan. On one level, they want to market the teams to overseas travellers, but they also want to tap the foreign teams’ expertise to help them develop their China franchises.

 

#10 Demographic policies to alter real estate demand

China reached a demographic turning point in 2015, when it became clear that the % share of young people in the population started to drop, while the % of old people started to increase.

Concerned about a dwindling workforce, the Chinese government released a spate of policies recently, including the stunning abolishment of the one-child rule, as the country promotes a new, more laissez-faire approach to family planning.

While we’ll leave a calculation of the impact on the economy to the economists, the acknowledgement of the demographic problem and the roll-back on one of the government’s main policies is a major sea change in China – one that’s likely to feature at the forefront of investor’s minds, particularly when it comes to property investments.

With this turnabout, 2016 and onwards will see more Chinese couples thinking in larger dimensions for living space to support their future families.

This shift in mentality, combined with overseas property investment being more accessible than ever, will also likely generate a wave of couples and retirees who will be thinking more seriously about moving overseas, which may expand the range of investible properties in mainland buyers’ sights.

2016 © Juwai