Chinese property developers recently told their investors that they are shifting their business strategy to focus on commercial projects rather than residential properties. The shift coincides with the developers’ announcement of their 2010 financial earnings, which indicate the residential market is booming, while the commercial market is in need of attention.
China’s central government intends to foster economic development through the increase of domestic cosumption. For real estate developers and investors, the promise of more consumer spending is alluring and has prompted them to spend in the commercial sector. Furthermore, China’s government does not closely control the economics of commercial property the way it does with residential property, something that is also attractive to developers.
The Chinese residential sector is moving from a seller’s market to a buyer’s market, and the real estate industry is now adjusting. Among they challenges they face are dealing with retail tenants, setting lease rates, landscaping, and other management tasks they may not be accustomed to facilitating.
Among the other differences are that commercial buyers are more rational, coming from companies and businesses, unlike residential customers. Moreover, commercial businesses must consider investment return, while residential buyers are concerned about home value appreciation.
As the market in China shifts gears, Chinese developers are hoping to make adjustments that bring rewards, even if there is risk involved. Whether or not those rewards come is something only time will reveal.