Government work report bodes well for occupier and investment markets

On March 5, 2017, Chinese Premier Li Keqiang delivered the annual Report on the Work of the Government at the plenary session of the National People’s Congress. 

Major announcements included:

• Lowering the annual GDP growth target to around 6.5%, reflecting a stronger focus on structural transformation and risk management instead of the pace of growth.

• Reducing the target for M2 and total social financing (TSF) growth to 12%, down from the 13% target in 2016. The government plans to strengthen its management of the overall leverage ratio and the corporate leverage ratio. 

• Maintaining the deficit rate at around 3% of GDP and stabilising growth by expanding tax cuts and infrastructure spending. 

• Raising the urban new employment target to 11 million from 10 million in 2016. The service sector will take on a leading role in job creation amid the record high number of college graduates and reduction in manufacturing capacity.

What does it mean for real estate?

Office: The implementation of tax cuts and a mass entrepreneurship and innovation campaign announced in the work report will boost office demand, particularly from the tech sector. Other pledges including amending the industrial category for foreign investment; improving the investment climate for foreign businesses; and relaxing market entry barriers for foreign enterprises in the service sector are likely to support the growth of office demand by 10% this year, as forecasted by CBRE Research in its 2017 Market Outlook report published earlier this year.

Retail: During the NPC, delegates proposed that families with a second child should receive subsidies and a tax free or rebated individual income tax. After the one-child policy was scrapped in 2015, 8.4 million second babies were born in 2016, accounting for 45% of annual newborns, compared with 33% in 2013. Consumption now accounts for 64.6% of GDP growth and is a critical stabilising force for economic transformation. The rapid growth in the new born population will stimulate child and family service-related consumption and speed up the transformation of shopping malls and theme parks.

Residential: Housing inventory in tier III and tier IV cities remains significant and supportive policies will remain in force. However, in tier I and II cities where purchases are restricted, home sales continue to deteriorate. CBRE Research forecasts that nationwide home sales will correct by 10% in 2017 in spite of the government’s pledge to increase the availability of residential land in tier I and tier II cities. There are no plans to roll out a nationwide property tax this year.

Investment: The lowering of the GDP growth target to 6.5% has further eased fears over an economic hard landing. CBRE Research’s 2017 Investor Intentions Survey found investors retain a positive attitude towards China due to its solid economic fundamentals and rapid urbanisation. Liquidity remains high and the stable yields provided by commercial property hold strong appeal for commercial investors unable to buy into the residential sector which remains subject to multiple restrictions.​​