China’s interest rate cut will help boost the country’s housing market but will put further pressure on its retail sector, according to CBRE.
In a last-minute report, the global consultancy also predicted that Chinese capital would continue to flow to foreign real estate investments, albeit with heightened conservatism.
“The latest interest rate cut has brought the effective mortgage rate to a historic low level and this should provide further support to a recovering housing market,” it said.
“However, support from lower mortgage rates could be curtailed if economic growth turns out to be worse than expected.”
China had been taking measures to avoid a house market crash in recent years.
In July, CBRE noted that policy measures implemented by the Chinese government were having a positive effect.
At the time, CBRE’s global chief economist Richard Barkham said: “Recent improvements in the Chinese housing market suggests that policy measures being implemented by Beijing, taken well before the current stock market turbulence, are starting to work.” China’s economy, he said, is “likely heading for a soft landing”.
Chinese retail property is most vulnerable to the rate cut, according to CBRE’s latest report, as it is already challenged by rising competition from online retailers, a “supply glut” and “a significant change in tenant mix”.
CBRE said: “The recent developments in the stock market as well as a slower GDP growth will add further pressure to this sector.”
The outlook could worsen for office markets in second-tier cities where there is already much supply and “lacklustre demand”.
For this reason, CBRE expects investors to concentrate on first-tier cities where there is “resilient demand”.
“In the face of a challenging economic outlook, we believe deals will take longer to complete and investors will show a preference for core assets, driven by a flight to quality,” the note said.
“Cap rates may potentially move up, in particular for lower-tier cities and the retail sector.”
CBRE said the long-term trend for outbound real estate investment would remain “positive”.
The company said: “As the Chinese government continues to push for liberalisation, a tightening of capital controls currently appears unlikely.
“That said, Chinese investors may turn somewhat cautious on deal selection in the near term with a focus on deal quality, in light of the uncertain economic outlook globally.”