Archive for the ‘Land Supply’ Category

Developers Switch Back To China’s Top Tier Cities

Wednesday, February 20th, 2013

China’s stock market started 2012 pessimistically but ended on a strong note. So it was with the residential market as well, where transaction volumes rose by 39.3% from a year ago for the 20 cities we monitor, as detailed in the chart below. As we expected, industry consolidation accelerated throughout the year as the top developers continued to outperform their peers. According to the data from China Real Estate Information Corporation, sales revenues of the top 10 developers in China increased 30.6% y-o-y to RMB 822.2 billion in 2012, with their combined market share growing approximately 2 percentage points to 12.8% in 2012.


Source: CREIS

The top developers’ rising sales revenue allowed them to step up their budgets for land acquisitions in the second half of 2012. For instance, Vanke, China’s largest developer by market value, spent about RMB 70 billion on land acquisitions in the second half of 2012. Similarly, Poly spent nearly RMB 30 billion on land acquisitions in 4Q12 alone. According to the data from CREIS, the total expenditure on land acquisitions by the top 10 developers reached RMB 175.3 billion in 2H12, up 50% from 1H12. In addition to the renewed interest by developers for land acquisitions, there also was a noticeable change in developers’ strategies in 2012. After several years’ aggressive expansion into lower-tier cities, the top developers are now switching back to top Tier I and II cities, such as Shanghai, Beijing, Hangzhou, Chengdu, Chongqing and Wuhan. A key reason for this change lies in the fact that the market fundamentals in the higher-tier cities look much healthier in the short to medium term than in the lower-tier cities.

Despite the high land costs, the supply pipeline in top Tier I and II cities is much more manageable than in lower-tier cities. A significant portion of Tier I and II cities’ populations are composed of college graduates from other cities and provinces seeking a place in the growing white-collar workforce in which salaries are higher and opportunities greater than back home. Jobs in many smaller cities offer less potential for career growth, and are considered to be less meritocratic. Shanghai, a top Tier 1 city, is viewed as the land of opportunity where the private sector is very large and the playing field is more flat. Immigrants thus provide a steady pool of potential buyers to the residential market in top Tier I and II cities. In contrast, lower tier cities often face very large supply pipelines relative to their pools of potential buyers. In the short to medium term, lower-tier cities’ large pipelines are likely to result in further price corrections, while in the top Tier I and II cities, developers can gain competitive advantage by developing high quality projects instead of only lowering prices. That said, the lower tier cities do offer several promising prospects in the long run, such as fast-rising urbanisation rates and low land costs.

About the author
Joe Zhou is the Head of Research for Jones Lang LaSalle in Shanghai.

Posted in China, Land Supply, Residential Research | No Comments »

Revitalising Bangkok’s Riverfront

Friday, May 18th, 2012

Given the wide network of canals and waterways that run through the city, Bangkok’s Chaophraya riverfront has historically played a significant role in the development of the city since its establishment as the capital in 1782. Transportation, commerce, government, tourism and education have all evolved along its river banks, but as the city modernised, the river and canal system gradually gave way to modern roads and mass transit infrastructure, which new development has followed. Although activity over the past few decades has generally moved away from the river, its continued role as a transportation artery and its natural endowments have brought renewed interest, with redevelopment starting to emerge along the river banks.

Certain landmarks along the river, like the Oriental Hotel established in the late 1800’s, and temples, have maintained their utility, charm and relevance. Other buildings have not stood the test of time so well, with many being demolished for new projects and as a result, high density residential developments have risen on both sides of the river near the Saphan Taksin bridge, where the BTS skytrain crosses to the Thonburi side. The riverside area now accounts for 10% of the total stock of condominium units in central Bangkok. Vacant land has also attracted new hotel and residential developments on the western bank which offer impressive views of central Bangkok’s evolving sky-line. River buses, cross-river ferries and water taxis offer quaint, but efficient transport from, across and along the river, feeding into the modern BTS skytrain system. The Bus Rapid Transport provides mass transport via dedicated bus lanes on Rama 3 Road and Ratchadapisek Road which follow and cross the river at Krungthep Bridge. In an increasingly congested city, these river developments offer a more open and natural environment.

Particularly in the core areas, where riverfront land is becoming increasingly scarce, we are seeing a new wave of modern redevelopment. A prime example of this is the new Asiatique retail complex on Charoen Krung Road. Developed in the early 1900s by the East Asiatic Company Ltd, the site originally housed warehouses and wharves dedicated to the import-export trade, but after lying idle for many years, the site has been brought back to life as a modern shopping centre, equipped with dining, entertainment and other facilities. The design and renovation retain the original feel, and allow both locals and tourists alike the chance to experience a unique riverside atmosphere. River City, renowned as one of the best places in Bangkok to buy antiques, has recently undergone a facelift and there are plans to bring the historic General Post Office (GPO) on Charoen Krung Road back to its former glory through restoration and an adaptive re-use as a mixed-use development.

As Bangkok continues to evolve, many areas across the city are witnessing new patterns of development. Given its history, natural endowments and improving infrastructure we are likely to see a re-birth of the importance of Bangkok’s riverfront, as the area recaptures its former prominent role in the capital’s skyline.

About the author
Dan Tantisunthorn is the Head of Research for Jones Lang LaSalle in Thailand.

Posted in Land Supply, Residential Research, Retail Research, Thailand, Urban Development | No Comments »

Limited Commercial Land Supply On The Latest Land Application List

Tuesday, February 7th, 2012

The government has just released its Land Application List for the 2012/2013 Financial Year. As expected, the majority of the sites on the List are planned for residential development and the government has once again neglected to address the imminent problem of supply shortage in the city’s Grade A office market.

Last year, six commercial sites were sold through government tenders, with five earmarked for Grade A office developments, providing the market with about 3.14 million sq ft of floor space. However, none of these will benefit the core-area submarkets since all are located either in Kowloon decentralised areas or in the New Territories.

I see the limited availability of development land in the existing CBD areas but it doesn’t mean that there is none at all. At least, sites such as the existing Sheung Wan Bus Terminal and Central Government Office West Wing have been on the planning agenda for a long time but the government continues to delay its availability on the Application List!

Interestingly enough, while two residential sites in Kai Tak were added to the new Application List, no commercial sites in this core part of the widely promoted CBD2 area were made available.

I have read a lot about the government’s concern about the potential damage to Hong Kong’s long-term competitiveness should the city continue to run short of Grade A office space. However, the government’s lack of effort in speeding up commercial land sales will likely leave this concern unresolved in the foreseeable future.

About the author
Marcos Chan is the Head of Research for Jones Lang LaSalle in Greater Pearl River Delta, based in Hong Kong.

Posted in Hong Kong, Land Supply | No Comments »

Fooling the Space Index: Strategic Densification of Mumbai

Monday, January 9th, 2012

Per the recent census of 2011, the Mumbai Metropolitan Region has over 23.5 million people. To house this population on the ground floor, assuming a household size of 4 and dwelling units of 900 sq ft per family which are laid wall to wall, we would need 121,384 acres of contiguous land. If all these houses are built facing the street (for access), providing a frontage of 20 ft to each unit, the total length of the street would be 35,606 kilometres!

Being the commercial capital, the city attracts not only migrants from all parts of India, but also has a high floating population which commutes to the city for work everyday. This high density calls for developments to be vertically stacked by design, with multiple functions layered one over the other. Still the case for increasing the Floor Space Index (FSI) in the city, which would enable more construction over the same land area, has always been met with stiff resistance on practical, sustainable and ethical grounds. Permissible FSI in South Mumbai is 1.33, while that in the suburbs has recently been increased from 1 to 1.33. Additionally, developers can purchase Transfer of Development Rights (TDRs) and construct up to a FSI of 2. However, this is low compared to global destinations, such as Singapore, New York and Hong Kong Island Urban Area, which have FSI of 5, 10 and 12 or above respectively within a radius of 10 kilometres from the city centre. What does this imply for Mumbai real estate?

Real estate developmental density in Mumbai has not kept pace with the growth in population density. Due to the huge pressure on its already scarce land resource, market forces have tended to circumvent the base FSI regulations and build more through ‘discretionary approvals’ in lieu of construction of civic amenities such as parking structures. Also, certain construction features, which were excluded from FSI such as balcony, flower-bed, voids and niches, were manipulated so that they could be utilised as habitable spaces post construction. These innovative circumventions of building regulations are nothing but ‘creative feedbacks’ by the industry.

Last week, the Government disapproved of these discretionary approvals for construction, and has come up with amendments in the Development Control Regulations. To increase transparency and remove layers of regulations, an all-in FSI calculation has been stipulated, which includes the FSI-free design features. In lieu of lost volume of construction, developers can build 35% extra (as Fungible FSI) by paying a certain premium to the Government. This could keep the construction volumes nearly the same, as developers used to overbuild nearly 25%-30% as FSI-free features. However, now, the developers would be more inclined to include this extra 35% as usable carpet area in the properties, resulting in better efficiencies in terms of carpet area to saleable area ratios. We could see more box-like residential towers which provide a maximum habitable area to the tenant, instead of lavish architectural projections such as balconies and other design features. It would also make the industry a level-playing field for developers, due to the purge in discretionary approvals.

The moot point to debate is: Is Mumbai building enough? Should FSI be increased from its current levels of 2 to 5 or 10? The issues are as much scientific and statistical as they are ethical. Some points to ponder:

• Strategic densification through a differential FSI regime based on micro-zoning instead of the current uniform FSI system is the key for balancing densities with infrastructure.
• Construction volume is directly dependent on the carrying capacity of developed infrastructure in terms of roads, water and power. Hence, permissible FSI can be mapped with projected completions of infrastructural projects, leading to zones or corridors of high-density development.
• Urban renewal should not be blindly incentivised by higher FSI, as it might lead to congestion in zones which have older properties.
• Strategic densification of suburban nodes could be explored as development of infrastructure is convenient at low-density locations.
• Premium monies collected for higher FSI should be compulsorily ploughed back through investments in infrastructural development.

About the author
Himadri Mayank is the Senior Manager, Research and Real Estate Intelligence Service for Jones Lang LaSalle in India.

Posted in India, Land Supply, Public Policy, Sustainability, Urban Development | 2 Comments »

Beijing Industrial Land Price Still Climbing

Sunday, November 13th, 2011

E-commerce businesses continue to propel demand for logistics space, and absorb the bulk of warehouse space from existing and future projects in the market. Due to tight supply and little favour from the municipal government to increase the logistics plot capacity, the transaction price for logistics space is soaring. One industry leader, 360buy.com, has to build its own regional distribution centre to meet its increasing online demand, with the very tight available spaces in the warehouse property market.

Sales transaction of industrial land also maintained high volume and increasing prices due to growing desire for business parks. Some large MNCs, particularly in the high-tech and pharmaceutical industries, favour the improved infrastructure, facilities, and preferential tax policies associated with business parks as opposed to the high rents of downtown office space. Beyond the fifth ring road, high technology industrial parks experienced growth in land value year to date.

In the following years, this bull market should continue based on strong fundamental demand and limited industrial land supply offered throughout Beijing.

About the author
Meggie Qin is the Head of Research for Jones Lang LaSalle in Beijing.

Posted in China, Land Supply | 1 Comment »

The Inheritance of Misery and Ending India’s Apartheid towards Its Poor Landowners

Monday, September 5th, 2011

Last week saw an unprecedented turn in India’s history, when public opinion and passive resistance led by a small group of “civil society” representatives rushed the country’s parliamentarians to reluctantly proceed towards an anti-corruption legislation. With a series of alleged graft cases that emerged during 2010, the country is getting desperate for an urgent and decisive solution to its burgeoning costs of corruption.

Land and natural resources – their ownership, use, acquisition and availability form the core of public discontent and corrupt practices in India, especially for its poor landowners. Land tenures in India are subject not only to statutory laws, but also to customary laws in several cases across the diverse landscape of the country. Due to the lack of transparency in transfer and acquisition processes as well as establishing ownership, the advantaged sections have a significant control over land assets in the country. Corruption is evident in the change of land-use, processes of land acquisition and the numerous disputes over legal ownership of land assets in the country.

For some, it is a measure of wealth, for some, it is a means to subsistence and for others, land becomes the inheritance of misery. How do we end this apartheid towards a majority of poor landowners in developing countries?

The Peruvian economist Hernando De Soto argues in his seminal work ‘The Mystery of Capital’ that capitalism works in the developed countries because assets in these countries are represented in a property document, which “provides a link to the owner’s credit history, an accountable address for the collection of debts and taxes, the basis for the creation of reliable and universal public utilities and a foundation for the creation of securities that can then be rediscounted and sold in secondary markets”. On the other hand, poor property owners in developing countries lack the process to represent their assets and create capital. They might have houses, crops and businesses. What they lack are titles, deeds and statutes of incorporation.

The solution towards successful domestic capitalism in the developing countries would be to convert this dead capital into assets which represent legal ownership. Every developed nation in the world went through the transformation from predominantly informal and extralegal ownership to a formal and unified legal property system. Several recent measures by the government suggest that India is stepping into this long transitional process of providing identification to its people and their assets.

The first step towards legalising ownership is establishing the right to one’s identity. The various identifications issued by state and central authorities over a period of time have resulted in layers of multiplicity in identities due to the lack of reliable authenticity. The Unique Identification Authority of India (UIDAI) was established in February 2009 with an aim to provide a single source of identity verification for residents and maintain a centralised database of basic demographics and biometric information. This will be instrumental in proliferating financial, political, educational and healthcare inclusion; regulating the public distribution system and ensuring entitlements to state-sponsored and other socio-economic benefits and subsidies. Another initiative is the National Land Record Modernisation Programme (NLRMP) by the Ministry of Rural Development in India to computerise the land records, updation of survey and settlement records and the computerisation of registration processes.

Even if we have established the identity of an individual and her/his rights over their tangible assets, only fair and just legislations over acquisition of these assets would ensure that the rights are protected. Recently, the Ministry of Rural Development has drafted the National Land Acquisition and Rehabilitation & Settlement Bill to update the century old Land Acquisition laws in the country. It combines the process of land acquisition with the processes of rehabilitation and resettlement, as both of them are inseparable in context.

While some of these initiatives and processes are indeed lengthy and time consuming, the gradual changeover that we will witness will become a crucial milestone in the country’s history of giving its citizens inclusive rights, ownership and participation over growth and development.

About the author
Himadri Mayank is the Senior Manager, Research and Real Estate Intelligence Service for Jones Lang LaSalle in India.

Posted in India, Land Supply, Public Policy | No Comments »

Where is Bangkok’s CBD?

Wednesday, June 29th, 2011

Depending on whom you ask, Bangkok’s central business district can actually be one of numerous locations across the city. From the days when the Chao Phraya River and the city’s intricate canal network provided much of the infrastructure for commerce, to an era when residents and visitors had few alternatives to spending much of their day stuck in the notorious road traffic, the biggest influence on how the city works these days is the mass transit infrastructure, BTS skytrain and MRT underground. As a result, rather than having a single commercial heart, the city is evolving around key nodes with a blend of high density office, retail, hospitality and residential developments clustering in these areas.

Coinciding with the launch of a high profile residential project, five business groups will collaborate to establish “Ploenchit City”, a new central business district between the Chidlom and Ploenchit BTS stations. The area already offers its fair share of office, retail, hotel and residential space, but new development includes the Park Ventures office/hotel complex, Central Embassy and Park Hyatt hotel, and the Noble Ploenchit condominium development. The group expects traffic to rise from the current level of 50,000 people per day to over 200,000 by 2016.

The initiative could shift some of the momentum built up by development around the Asoke-Sukhumvit intersection over the past couple of years. The relocation of Citibank to the recently completed Interchange 21 at the Asoke-Sukhumvit intersection highlights a shift towards density being realized at these infrastructure nodes. Also at the Asoke-Sukhumvit intersection, Exchange Tower completed in 2006 was one of the first office buildings to link directly with a BTS station. Meanwhile, the completion of Terminal 21 at the end of this year will be the first major retail center linking to the Asoke-Sukhumvit BTS sky-train and underground MRT stations.

And despite these recent developments, the Chong Nonsi intersection, at Sathorn and Narathiwat Roads, still offers the largest amount of grade A office space. The Bangkok Metropolitan Authority recently completed construction of the platform over the intersection which allows easy pedestrian access between the BTS and Bangkok Rapid Transit stations as well as the many high quality buildings in the area. The recently completed Sathorn Square office building, built in conjunction with Bangkok’s soon to be first W Hotel has further raised the profile of this already prominent intersection.

In all these areas, individual commercial developments are less able to stand alone on their own and are increasingly reliant on integration with the infrastructure and other buildings in the area. Other key mass transit locations also comprise high density commercial and residential offerings, and new development plans are already entering the pipeline. As these nodes evolve and attracting traffic becomes increasingly competitive, we can expect to see more collaboration among landlords and developers promoting their area as the best commercial zone in Bangkok.

About the author
Dan Tantisunthorn is the Head of Research for Jones Lang LaSalle in Thailand.

Posted in Demography, Investment Research, Land Supply, Office Research, Thailand, Workplaces | No Comments »

Hong Kong needs a better balance between idealism and practicality

Thursday, June 9th, 2011

There is a growing dilemma in Hong Kong, with people protesting against a shortage of land and high property prices on the one hand while, on the other hand, refusing to consider proposals to rebuild some older buildings in order to satisfy the growing need for urban accommodation, claiming that they need to safeguard their collective memories of historic buildings! I need to highlight the fact that it is also not always feasible to build more on other available sites as, these days, the public is also against tall and/or screen-like buildings from a building environment angle.

I would agree that memories and sustainable building environments are important, but equally important is a good balance between idealism and practicality. If the criticisms concern property prices (and rents in the case of commercial offices) reaching high levels and land availability in urban locations being severely limited, I do see the need to make some compromises.

The current market upcycle is, of course, the combined result of many demand-side factors, although the fact that Hong Kong is running short of new and future property supply (particularly in the city centre locations) is definitely a catalyst, pushing prices and rents high. Although the Government is responding (finally) to the public’s cry for more new development sites, fewer public protests against high-density developments, especially in urban areas, will definitely help to further ease the supply-side pressure.

Land is always a scarce resource, especially in a densely populated city such as Hong Kong. I believe that the public’s continued insistence on placing harsh constraints on the very limited land available for development in the city is not a sustainable solution that will lead to good collective memories in the future.

About the author
Marcos Chan is the Head of Research for Jones Lang LaSalle in Greater Pearl River Delta, based in Hong Kong.

Posted in Hong Kong, Land Supply | No Comments »