Asia Real Estate Market Update - December 2021

Please scroll down to see our special section on “The impact of recent China policy reforms on the real estate industry”


Hong Kong Office

Revival of leasing activity in Central – Overall Grade A vacancy dipped to 9.6% in November, from 9.8% two months ago, according to JLL. Among the major office submarkets, Central was the only one to register rental growth - up 1.5% y-o-y in 2H21. In the most notable leasing transaction of the month, Bank of America Merrill Lynch renewed its lease on seven floors totalling 150,000 sq ft at Cheung Kong Centre, at a monthly rent of HK$112 per sq ft. Meanwhile, a whole floor of 13,721 sq ft at 9 Queen’s Road Central was leased for HK$70 per sq ft.

Far East Consortium sold the commercial portion of a development in Kai Tak to CLP Holdings (China Light and Power) for HK$3.38 billion (HK$18,891 per sq ft). The property is adjacent to the future Kai Tak Sports Park and will become CLP’s new headquarters. In Central, a locally listed company sold a whole floor in Cosco Tower for HK$420 million (HK$21,721 per sq ft).

Hong Kong Retail

Investors await border reopening – Retail sales climbed for the ninth consecutive month, up 12% y-o-y in October from a low base, however sentiment in the leasing market remains mixed. Retailers continue to surrender space, with Burberry joining Prada and La Perla in shutting down its flagship store at Soundwill Plaza in Causeway Bay. Selective expansion was seen elsewhere, following years of rent cuts. A local retailer leased 4,400 sq ft at 7 Cannon Street in Causeway Bay for a monthly rent of HK$800,000, while Swiss watch brand ORIS took up 3,000 sq ft at Nathan 562 in Mongkok for HK$200,000.

A local investor offloaded several shops on D'Aguilar Street in Central for HK$183 million (HK$17,500 per sq ft), an initial yield of 3.2%; and Hong Kong Professional Teachers’ Union sold vacant shops at Wing Tak Mansion in Causeway Bay for HK$160 million (HK$16,000 per sq ft).

Hong Kong Residential

Cash-strapped mainland developers selling HK assets – Homebuyers continue to pile into new flats launched in the market. CK Asset’s #LYOS in Yuen Long sold 308 of the 341 units on offer, while Wheelock Properties’ MONACO ONE in Kai Tak sold 486 out of 492. KENNEDY 38 in Kennedy Town, jointly developed by Sun Hung Kai Properties, Wheelock Properties and Henderson Land, sold 96 out of 130 units on launch day.

Kaisa Group, stranded in a liquidity crunch, sold a residential site at Kai Tak to a joint venture between New World Development and Far East Consortium for HK$7.04 billion (A.V. HK$13,829 per sq ft). The developer also sold land in Tuen Mun to a local investor for HK$3.77 billion (A.V. HK$6,469 per sq ft). Meanwhile, China Aoyuan sold a redevelopment project in Mid-Levels to a local investor for HK$900 million (A.V. HK$16,926 per sq ft) at a loss of HK$177 million.


Singapore Office

Partial CBD facelift – A sizable but quiet CBD fringe bounded by Havelock Road, Magazine Road and Merchant Road will finally be rejuvenated under the URA Strategic Development Incentive Scheme. City Developments Limited has obtained Outline Permission to develop Central Mall Office Tower, Central Mall Conservation Shophouses and Central Square together into 735,000 sq ft of commercial, hospitality and serviced apartments. The current GFA is just over 441,000 sq ft. This follows CDL’s acquisition of Central Square from DBS Trustee Limited, the trustee of Far East Hospitality REIT, for S$315 million.

The rejuvenation will complement the revitalisation of the Singapore River planning area and benefit surrounding developments. Sales discussions may now advance for the 51 Merchant Road office building, which was recently put up for sale for S$200 million; and Riverside Piazza (commercial and residential) may seek to relaunch the collective sale exercise that ended without a winning bid in 2019.

Singapore Retail

Continued improvement – Despite tighter COVID-19 restrictions, retail sales rose 7.5% y-o-y in October, extending the 6.8% y-o-y increase in September. Excluding motor vehicles, sales were up 11.4% y-o-y. October’s total sales value was approximately S$3.6 billion, of which 15.2% was from online. With higher mobile phone sales from new product launches in October, the computer and telecommunications equipment segment surged 73% y-o-y. On the other hand, F&B sales declined 4.5% y-o-y, reversing a 4.5% y-o-y increase in September.  With the two-person cap on dine-in group size, restaurant revenues fell 24% y-o-y. Of the S$659 million F&B turnover recorded, 38% was from online.

Singapore Residential

Luxury home sales soar – Sales of homes priced above S$10 million climbed to new heights this year. According to the Institute of Real Estate and Urban Studies at the National University of Singapore, 279 such homes were transacted from January to September. This was about two-thirds more than the 170 sold in the whole of 2019 and higher than previous full-year peaks in 2010 (267 units) and 2007 (275 units). Of the 279 ultra-luxury sales, 246 were resale units and 33 were new from developers. Detached houses were the most popular, accounting for 63% (176 units) of total transactions. Seventy-six of these were located in Bukit Timah planning area and 21 in Tanglin. For non-landed homes, units along Orchard Road were the most popular, with19 units sold. We see strong demand for Good Class Bungalows from locals, overseas entrepreneurs and new citizens. Non-landed homes are sought after by locals and some foreigners who see Singapore a safe haven.


Shanghai Office

Growing demand for small units – Leasing demand for units under 1,000 sqm accounted for 45% of the total in 2Q and 48% in 3Q, according to CBRE.  Foreign tenants’ share of leasing demand rose 4% to 31% of the total in 3Q, driven by the government’s policy of opening markets to foreign capital.

On the investment front, Greenland sold a 60% stake in a new three-building complex in Pudong to two SOEs (Shanghai Land Group and Shanghai Chengtou Holdings) for RMB 3 billion (RMB 38,353 psm on 130,369 sqm of GFA), with an option to buy-back the stake with 8% p.a. interest in two years. Greenland is under pressure to increase its liquidity and lower its leverage ratio to comply with the Three Red Lines policy. Belle group, a Chinese shoe manufacturer and retailer, bought a 23-storey grade-A office building in Xujiahui CBD from a local developer for RMB 950 million (RMB 37,766 psm on 25,155 sqm of GFA). The building is operated by Merlion Property Services from Singapore.

Shanghai Retail

Daning Jiuguang opening – Ten years after the land was acquired, the long-awaited Jiuguang mall in Daning made its opening in November. The 180,000 sqm luxury mall is Lifestyle International’s second project in Shanghai. As with its first project in Jing’An Temple CBD, Daning hosts luxury brands and carries a large Jiuguang department store. What’s different about this project is that it has a larger base of F&B tenants as well as lifestyle tenants, to serve the surrounding high-density residential community.

Shanghai Industrial

Labs hotly pursued – Demand from the tech sector remains strong, accounting for 55% of total leasing demand in core business parks in the past 12 months. The highest growth, however, came from the biomedical sector, which went from 13% to 23%. The acceleration of the biomedical industry’s development has made business parks with Environmental Impact Assessment approval (a pre-requisite to build laboratories required by government) and other R&D resources a sought after asset class.

Buildings that are qualified for biomedical R&D use cluster in three districts, Zhangjiang, Zhoupu and Lingang. Zhangjiang, with its leading infrastructure, proximity to universities and talent, active redevelopment and tight supply, has the highest rents of the three districts, at RMB 4.5 to 7.5/sqm/day, according to Colliers.

The impact of recent China policy reforms on the real estate industry

The big picture – China has introduced a series of new regulations targeted at the technology, education, and real estate sectors. The ultimate objective is to deliver sustainable growth and “common prosperity”. Since opening its economy in the 1970s, China has been on a phenomenal growth trajectory with an average real GDP growth at over 9% p.a.1 This rapid expansion has led to market imbalances and social inequality, threatening the stability of its domestic economy. Hence, the government’s introduction of market-oriented reforms geared towards reshaping its economic growth drivers, centred on domestic consumption. These new regulations aim to align the private sector with the China’s social and economic objectives in support of the next phase of growth.

Regulatory catch-up and rebalancing – Beside aligning the private sector to these strategic goals, China is also playing regulatory catch-up as it looks to internationalize its domestic markets and to elevate its overall competitiveness and global standing. For instance, in February 2021 China launched anti-trust laws to promote more rational competitive behaviour and to improve consumer rights, consistent with the anti-monopoly trend witnessed globally. Meanwhile, China introduced data protection regulations in November 2021 to improve the protection of non-public information, personal data and privacy, a legislation regime that is already well-developed in the US, UK, and Europe.

The recent regulatory crackdown on private tutoring was an attempt to rebalance inequality in the education system, as the cost of private tutoring has escalated beyond the affordability of many families thus benefiting those with financial means, which exacerbated issues of social inequality.

Real estate regulations – In support of its “common prosperity” drive, China has introduced real estate measures to deleverage the sector as a mitigant against systemic risk, and to promote a more stable and affordable housing market by deterring property speculation, under the directive that “housing is for living in, not for speculation”. These real estate measures include:

  1. The “three red lines” regulation – to contain the debt binge of Chinese developers by assessing their financial position against three debt metrics that they must comply to access new debt financing.
  2. Two-way pricing limits – imposed on land sales and first-hand residential sales to curb the rapid rise of housing prices.
  3. Limits on property-related loans and mortgage ratios – PBOC has imposed a 40% cap on corporate loans relating to real estate, and a 32.5% cap on individual mortgages.
  4. Land supply controls – a centralized land auction scheme has been implemented to limit the number of land auctions to three times per year.

In addition to these real estate measures, China has also introduced policies that promote the long-term development of its real estate and capital markets in support of balanced and sustainable growth. These policies include:

  1. Urban renewal – The urban renewal pilot program that was championed in Shanghai has been extended to 21 other cities to encourage the revival of local areas through sustainable urban renewal and redevelopment schemes.
  2. Further opening to foreign capital – China has expanded the investment scope for qualified foreign investors (QFLP), offering legal and commercial flexibility, as well as tax benefits. This is expected to create a more efficient and simpler investment environment to attract foreign capital.
  3. C-REITs – The first batch of nine industrial C-REITs were listed in June 2021, marking the official launch of China’s public real estate investment trust market. In July, the pilot scope expanded from industrial parks, warehouses, and infrastructure facilities to include affordable rental housing. Following the successful launch of two further REITs in November, the continued development of the C-REIT market is expected to see further expansion of eligible assets and investors and deepen the capital markets.


1The World Bank, Oct 2021.

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