Expert Opinion

Colliers’ Takeaway from the Third Party Plenum

As we know, the Communist Party held its Third Plenum in Beijing in early November. Following the meeting, the country leaders issued a 60-point plan laying out a broad direction for the country’s future development.

We consider seven of them having an impact, either directly or indirectly, on China’s real estate market.

1. Establish a unified market
2. Allow farmers enjoy the same benefits as city residents
3. Strengthen protection of property rights
4. Speed up free-trade zones
5. Streamline the relationship between government and the market
6. Improve government’s credibility
7. Improve the financial system and broaden reform

We would like to highlight two points that have the most substantial impacts which is:

Point no. 1 : Allow farmers to enjoy the same benefits as city residents which can be considered as urbanisation reform. This may have two immediate effects.

First, the farmers will be able to monetise their properties and to sell their land, and they will be able to obtain official “urban” status and become legal “urban” residents. This allows them to move to cities and enjoy the same rights as local city residents. The benefits I am referring to are medical care, education and pension and so on. This will directly push up China’s urbanisation rate, which is now about 53%, leading to more demand for all sectors of real estate. By comparison, urbanisation is about 80% in Europe and the US, leaving a lot of room for growth in China.

Second, as farmers sell their land, they will have new spending power, which will directly boost the retail sector.

The other important aspect is to speed up free-trade zones.

This will impact the office sector the most as it encourages setting up designated areas that can experiment with financial reforms. This particular point is apparently about financial deregulation, such as interest rate deregulation and RMB convertibility, although this is not explicitly mentioned. These zones will need office space, leading to the construction of new business districts and financial centres.

This Free Trade Zone concept has already been introduced in Shanghai in September this year and it already has a big impact on the office, logistics and residential property sectors. The announcement of the zone boosted sentiment in surrounding districts, even though details about how it will function are still vague. People are anticipating future growth in asset performance. It also lifted many developers’ and investors’ confidence. As a result, land transaction prices and rentals increased in the areas nearby the Free Trade Zone. We see this in Chuansha, near the zone, where the accommodation value for land there has increased from RMB2,500 to RMB18,000 in just 4 months’ time. This is nearly 6 times increase and quite significant! In the investment market, some property owners even changed their exit strategies from sell to hold. If these zones are established in other cities, it’s likely they will have an impact on the nearby real estate market as well, although the details will depend on implementation and the local situation.

In a nutshell, we think the new Plan signals comprehensive policy reform. It will help China’s real estate industry develop in a more efficient, market-driven way. It may also bring a stronger focus on property rights. As the economy grows and becomes more service-oriented, these reforms will be necessary. Of course, everything depends on implementation, but if successful, the reform may promote a shift from a short-term objective to a long-term plan, which is certainly a good thing for the real estate industry.

This is just a snapshot of what has happened in the last two weeks.
For more in-depth look and analysis, please visit our website and download our research paper at your convenience.

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