How is coronavirus impacting mainland Chinese real estate markets?

Since the outbreak of the coronavirus, fear over the spread of the new disease has confined millions of Chinese people to their homes, putting a strain on most manufacturing and service industries. In response, China’s central bank has provided up to RMB1.7 trillion (US$ 244 billion) in additional liquidity to the money markets and lowered lending rates to support companies and overall economic growth. On a regional level, local governments are aggressively rolling out support measures such as loans for small and medium enterprises, tax cuts and subsidies to counter the impact of the virus. 

Opportunities exist for investors

Based on Colliers’ consultations, foreigners have mostly stayed on the sidelines since the coronavirus outbreak and are adopting a passive strategy in H1. Travel bans have only exacerbated the situation, as foreign clients cannot see Chinese assets first-hand. However, most investors contacted by our Capital Markets team have indicated their positive long-term outlook towards China and should be more active in H2.

Our survey shows that domestic investors see the present situation as an opportunity to hunt for bargains. They will probably remain active throughout the year, as cash-strapped asset owners or businesses may be more flexible over prices.

Retail at the epicentre

Not surprisingly, the retail sector has been hit the hardest since the outbreak, with 88% of the retailers surveyed indicating a reduction in revenue, while only 12% have managed to keep business stable or achieve growth in sales. With reduced business hours and increased control measures implemented in most retail malls or shops, foot traffic has declined significantly. This is why 16% of the respondents have indicated a plan to reduce their total stores in 2020, while 11% are trying to cut costs.

From a rental perspective, most landlords have given out 0.5-1.0 months of rent-free period, while 50% of retailers had been expecting 1-2 months. Since many retailers are expecting lingering effects, 24% of respondents have more measured sentiment, expecting a rebound in H2.

To counter the losses, 52% of the respondents have indicated willingness to expand their online footprint, and cooperation with existing online retailers may be an option. Colliers recommends retailers take this opportunity to reposition themselves, and further strengthen their online presence. Moreover, Colliers suggests that retail landlords should establish e-commerce channels with their tenants; such action should benefit local economies.

The crisis may actually be an opportunity for some brands or business to expand quickly, and gain market share at the expense of rivals.