On October 23, 2015 the People’s Bank of China
(PBOC) announced a 25 bps cut to the benchmark lending rate – the sixth
reduction in a row since November 2014 – as well as a 50 bps cut to the Reserve
Requirement Ratio (RRR). The PBOC also took what it described as a “core
reform” by abolishing the cap on deposit rates for all commercial banks,
marking a further step towards the liberalisation of interest rates.
This latest round of easing measures was
announced shortly after China published economic data for Q3 2015, during which
quarterly GDP growth beat consensus estimates to reach 6.9%. Macro indicators
suggest manufacturing and industrial production continued to struggle. However,
this was largely offset by a resilient services industry, which now accounts
for over half of the economy. Nevertheless, CBRE believes the timing of the
latest cut indicates that downward pressure on the economy is likely to persist
in the coming quarters.
Implications for real estate：
Residential: Since the
beginning of 2015, conditions in the housing market have improved following a
series of interest rate cuts together with the lifting of Home Purchase
Restrictions (HPRs) in most tier II cities. The latest interest rate cut will
further improve housing affordability by lowering the cost of mortgages.
However, it is unlikely to provide the housing market with a significant boost
due to the diminishing marginal effect and ongoing concern over the economic
slowdown.
Office: Leasing demand
in the office market is currently being driven by domestic SMEs and TMT
companies. The increase in money supply resulting from the rate cut is expected
to fuel economic activity, although this hinges on whether commercial banks
will be willing to lend to domestic SMEs. On the supply side, the supply glut
in many tier II cities will continue to depress these markets.
Retail: The retail
property sector continues to suffer from the growth of e-commerce, which now
accounts for more than 10% of total nationwide retail sales. At the same time,
macroeconomic volatility including the fall in the local stock market has had a
strongly negative impact on retail sales in the mid-to-high-end sector. This
sector will continue to struggle.
Investment: Slower
economic growth is impacting real estate market sentiment and some more
risk-adverse investors may soon adopt a ‘wait-and-see’ strategy. The trend of
flight-to-quality is expected to persist as investors opt for the relative
safety of core assets in tier I cities.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
