_How does the US-China trade war impact China's real state market and beyond?

How does the US-China trade war affect the real estate market overall?

Any trade war will first impact trade then GDP as it is often trade dependent. Even when the current depute is largely between the US and China, the trade dependency will spread the impact to other regions albeit in stages.

From a real estate point of view, many decisions in the second half of the year and early next year will be delayed, especially in investment and leasing markets as corporates wait out the storm.

As Chinese investment in the US is under increased scrutiny, Chinese investors’ attention may shift back to domestic markets although a lack of quality investible stock is still an issue.

Belt and Road countries may also see some benefit although domestic and regional politics may start to present some hurdles on infrastructure investment. 

Which countries will benefit the most and which ones will get hit badly? In what ways? 

Let’s be honest, no one will really benefit from any dispute. It creates uncertainty and it is bad for real estate planning. In a bilateral relationship where every production process is intertwined, even when China may be hit on trade, the US consumers could potentially end up suffering more.

In the long run, if China is able to diversify the source of imports and form partnerships with new suppliers as well as find new markets, it’s GDP growth is unlikely to suffer too much from this dispute. 

Meanwhile, its domestic real estate market is still driven by local supply and demand so it is unlikely to change course in the short term. The government is also easing credit for firms to operate more easily in the domestic market so there may not be much impact this year.

For open economies such as Hong Kong where many trading firms require leasing spaces, requirements could temporarily be put on hold should the trade disputes intensify.

3. To what extent is the residential and commercial property market in China affected?

As previously stated, the residential market in China is unlikely to be affected by the trade war as it is very much driven by local demand and this demand is driven by continued urbanization and city-clustering such as the development of Greater Bay Area.

The real impact on the residential market is the latest purchase restrictions imposed on several cities that could affect both price and transaction.

There has not been much visible impact on the commercial property market in China. Office demand from domestic firms and increasingly from tech firms and multi-media companies remains strong.

Logistic properties are supported by the strong domestic e-commerce market even though some of the manufacturers are mulling relocating to other countries in the long run.

4. How does the trade war impact Hong Kong’s property market?

Hong Kong’s residential market is very much driven by user and investor demand which is still strong however stock market turbulence caused by the trade war may have an impact on the timing of people’s decision to enter the market.

Interest rate hikes will also have an impact but the market in the mid to long-term is still influenced by Hong Kong’s land shortage and the government’s plans to find more land.

The office market is driven by financial firms requiring prime space in central locations. A trade war will have limited impact on this segment of the market.

However, trade related firms may halt or reverse any expansion plans for the time being, e.g. in port, storage and logistics properties, as projected trade volume may come under pressure.

However, Hong Kong is an independent trading entity and has a trade deficit with the US. This could in a way shelter the territory from a major fall-out. However, sentiment driven fluctuations in the stock market could exacerbate any real impact on the property market.

For more information, or to discuss any of the points raised in this article contact David Ji, Head of Research and Consultancy in Greater China.