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146: Chinese property boom - trends and demographic fundamentals


07-15-2007

Demographic Trends and how they affect Property Investment Potential

Demographics: 'the quantity and characteristics of the people who live in a particular area, especially in relation to their age, how much money they have and what they spend it on'

Baby boomer: 'somebody born during a baby boom, especially the one following the end of World War II.'

In this section:

Chinese Demographics

The Chinese population is projected to increase from some 573 million in 1950 to 1310 million in 2002 to 1480 million in 2025, mainly through people living longer. Much of this population growth is from people living in the interior agricultural areas migrating to city and coastal areas for work – examples are Shanghai, and Guangdong Province in the south-east China.

The restrictions on the size of families has dented the population growth.  But even though China is not reproducing itself, people are living far longer than previously mainly due to improved health care, food and working conditions – albeit counter to this trend is that fact that most people get less exercise and are more overweight than 50 years ago. If this trend is reversed, one could expect to see average ages and hence the population grow even higher.

Another important trend is immigration – the mass influx of agricultural people to city areas in such of manufacturing jobs is leading to a boom in population in city areas – this is also supporting GDP growth and preventing wage inflationary pressures building (which can in turn lead to higher interest rates). This general demographic situation is well known, fairly deterministic and should help support house prices and demand for property in the longer term. On a small scale, expect the following demographic trends on a regional level:

So there will be a shift of low earning rural people to the cities/suburbs and wealthy city folk to the countryside close to large cities. There will be a considerable increase in demand for homes (whether permanent or second homes) with sea/coastal views as the baby boomers retire starting (the oldest baby boomer is now 62 years old) and continuing for the next 20 years.

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Asian Demographics

 

The Chinese has a healthy demographic trend for house prices – however, the population of Asia as a whole will rise from 3520 million in 2002 to 4375 million by 2025 and 4830 million by 2050. India will have the largest total population increase – from 1155 million in 2010 to 1601 million in 2050.

 

Country          2010               2025            2050            % increase ’02-‘50

                   Million            million         million

India           1155             1364             1601            55                                  

China            1375             1482             1449             11                         

Pakistan        171               213              268              81     

Bangladesh    160               205              280             106    

Indonesia       259              300              336              45     

Philippines     96               119              148               78     

Vietnam          89               104              117               45     

Nepal              21                40               53              106                                          

Malaysia         26                33               43                90

S Korea          50                52                48                0

Australia         21                23                24               24

Japan          127               120               100            -21

Russia            142               136               118            -19

Total          3702             4189              4585             34

 

However, both Japan and Russia will see population drop significantly after 2010 so be wary of investing in these countries – particularly in depopulating agricultural areas a long way from the main cities (e.g. Siberia in Russia and northern Japan).

Macau will see a large population influx and retiring babyboomers, gamblers and people interested in leisure and holidays. The same applies for all select coastal areas popular with international holiday makers – examples include Puckett in Thailand and select Chinese holiday resorts along the south coast of China. 

Asian Demographic Changes up to 2050

Property investment is for most people a long-term financial undertaking – so with this in mind, it seems prudent to consider future long-term demographic changes that will affect supply and demand for property in Asia up until 2050. The Asian population will deliver the most increase in the number of people from now until 2050 – another ca. 900 million people from 2010 to 2050.  

In Russia and Japan, it is not increasing mortality but the low fertility rates that will be responsible for the population shrinkage. People are getting married later, having fewer kids and many only have one or even no children. If the Russians keep their low fertility rate, and there is not a significant rise in immigration, the UN forecasts the population will drop by 19% by 2050.

The Japanese and Russians will have an aging population that will start affecting GDP growth after 2010, as more retired people are kept by fewer worker. China may eventually see the affects as well, but this should not be until about 2040.

Some South Asian countries such as Bangladesh, Pakistan and Nepal will see their populations double from 2002 to 2050. Land, food and water shortages could hit such countries, but property prices in central cities is likely to rise as more business is set up to cater for the expanding populations.

Predictions for Chinese Property demand up to 2050

Based on these projections of an aging population, we have prepared a few types of property that will be in demand, and those that will not be in demand as this demographic shift takes place from now until 2050:

Property In Demand

Property Not in Demand

In Chinese cities where wages and the standard of living will rise the fastest, one can expect to see prices moving up fast. Since Chinese like to be close to their families, there will likely not be a mass migration of retiring babyboomers to coastal area – however, the more wealthy babyboomers may purchase second homes or holiday homes in pleasant resorts.

“Baby Boomers” Demographics and Desires

A key consideration in future property investments is how will the baby boomers affect market prices and demand, and which segments will this be in? The baby boomers are those born between mid 1946 (end the World War II) and 1964. This was an unprecedented baby boom period in China. Immediately after the war, a surge in babies continued at rather high levels until the early 1990s. It trigger the start of the house building boom in 2000 and is likely to continue the boom through to 2030.

These baby boomers will starting to retiring around 2010 – the first wave are now 61 years old in 2007 – most retire between 60 and 65 years old. In the next twenty years there will be a huge opportunity to service these baby boomers – they are the ones who have benefited most from the boom economic years and have already driven house prices to record highs. They are currently in their peak money generating years (40s and early 50s). So what next? Our prediction is that these baby boomers will want the following:

Sun, sea, sand, south, sailing, golf

These new baby boomers will “not” want to sit out their retirement – most will be active, sporty, fit, desire the café culture, want to travel extensively, and be independent. They will “not” desire boring warden assisted retirement complexes in the middle of nowhere – what they “will” desire is fun, the sea, a community and proximity to family, friends and culture. They will avoid high crime areas, want to be close to airports and avoid traffic jams. They may also desire to return to where they or their family grew-up if they had fond memories, or move to where they enjoyed family holidays. In summary, they are likely to either:

We believe the ideal investment to service these needs is a medium-high end two double bedroomed apartment with balcony overlooking the sea or marina (example locations would be the south coast of China). There will be more and more baby boomers chasing less and less property – and it’s just beginning. The suburban semi-detached and detached houses – so called commuter properties – may become less fashionable though demand will remain high in Shanghai and the larger industrializing cities. Large houses in the countryside with land will probably increase their value if they are close to large cities, although these properties may become difficult for the elderly people to maintain and service in later years.

Any improvement in infra-structure in towns will improve property prices – examples are new Universities, new high speed train links, Olympic venues, large new office complexes.

We see particular capital growth in these areas in the next 10-15 years, as more baby boomers decide to settle outside urban conurbations to the “seaside”. The sea, sand, sun, surfing, sailing, walking, cycling, café culture and activities / amenities will increase demand in these areas. That it not to say that the main city centres will not do well. Baby boomers may also choose to have a pied-de-terre for tourism, leisure, maintaining business and investment contacts, visiting family and friends – hot areas are likely to be Shanghai, Beijing, Tianjin, Hangzhou, Hong Kong, Shenyang and Changchun. The closer the pied-de-terre apartment is the top theatre, restaurants, central banking and business complexes and city leisure centres the better.

Below for reference are the largest Asian cities with their populations and ranking. The cities that are expanding quickly such as Indian and Chinese cities will do very well from property investment. As it becomes more difficult to travel into work and the cities expand and congestion increases, the central apartment locations will sell at a premium. 

Biggest Asian Cities (with Global Ranking by size)

1. Tokyo, Japan - 28,025,000
3. Mumbai, India - 18,042,000
6. Shanghai, China - 14,173,000
9. Calcutta, India - 12,900,000

11. Seóul, South Korea - 12,215,000
12. Beijing, China - 12,033,000
13. Karachi, Pakistan - 11,774,000
14. Delhi, India - 11,680,000
15. Dhaka, Bangladesh - 10,979,000
16. Manila, Philippines - 10,818,000
18. Õsaka, Japan - 10,609,000
20. Tianjin, China - 10,239,000

21. Jakarta, Indonesia - 9,815,000
23. Istanbul, Turkey - 9,413,000
24. Moscow, Russian Fed. - 9,299,000
28. Bangkok, Thailand - 7,221,000

31. Hyderabad, India - 6,833,000
32. Chennai, India - 6,639,000
34. Hangzhou, China - 6,389,000
35. Hong Kong, China - 6,097,000
36. Lahore, Pakistan - 6,030,000
37. Shenyang, China - 5,681,000
38. Changchun, China - 5,566,000
39. Bangalore, India - 5,544,000
40. Harbin, China - 5,475,000

41. Chengdu, China - 5,293,000
43. Guangzhou, China - 5,162,000
44. St. Petersburg, Russian Fed. - 5,132,000
47. Jinan, China - 4,789,000
48. Wuhan, China - 4,750,000
50. Yangon, Myanmar (Burma) - 4,458,000

53. Qingdao, China - 4,376,000
55. Pusan, South Korea - 4,239,000
57. Almadabad, India - 4,154,000
65. Chongging, China - 3,896,000
68. Handan, China - 3,763,000

71. Hanoi, Vietnam - 3,678,000
72. Sydney, Australia - 3,665,000
74. Singapore, Singapore - 3,587,000
77. Pune, India - 3,485,000
78. Bangdung, Indonesia - 3,420,000
81. Nagoya, Japan - 3,377,000
82. Nanjing, China - 3,375,000
84. Xi'an, China - 3,352,000
90. Melbourne, Australia - 3,188,000

92. Dalian, China - 3,153,000

Beijing and the Forbidden City

 

Prices in central Beijing are in the range £1000/m3 to up to £3000/m3 for the very most exclusive penthouses. Expect prices to rise rapidly to London West End levels in the next 10-15 years. Anywhere close to the Forbidden City is the most select address (equivalent of the Mayfair of Beijing). It's a simple model, the closer the better and expect prices to sky-rocket the close to this area you are.

 

Enclose below some ariel photos which may help orientate you.

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This image is zoomed out - we hope you have found these helpful.

 

 

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