PERSPECTIVES
PERSPECTIVES

KaiLong Perspectives: The 13th Five-Year Plan and Its Impact on Real Estate

JUN 2016


CRECCHK Research Report by Research and Publicity Committee

 

The 13th Five-Year Plan
and Its Impact on Real Estate

 

Article by : Ivan Ho

Managing Director of KaiLong Group

Co-Chairman of CRECCHK Research and Publicity Committee

 

Premier Li Keqiang's government work report did not mention much about the real estate directly. However, the report mentioned a couple of stimulating policies mainly to maintain the economic and social development by motivating structural reform and development of new economy. By doing this, we summarized below key aspects and their potential impact on real estate:
 
Achieving medium to long term stable economic growth
 
Flexible fiscal and monetary policies will be launched to support the economy. Policies include but not limit to tax and interest rate cuts, M2 supply, building of infrastructure and transportation. Although the government intends not to stimulate the economy by enhancing real estate investment, the industry may still be benefited by lower financing cost. The government will also provide steady M2 growth (13% in 2016) and other monetary tools to support the economy, specifically for startup and small enterprises, agriculture, high-tech companies tenants.
 
Motivating structural reform and new technology
 
More favorable measures will be implemented to encourage R&D, innovation and entrepreneurship. More national programs will be launched to support startup enterprises and new innovation such as big data, cloud computing, internet plus, etc. Traditional real estate funds and developers may not survive without changing into a new business model. For instance, the fast growing co-working space business will drive the demand of more business activities and desire of more office space. A well-developed O2O platform can be a key for not just technology companies, but also a critical tool widely be used in different real estate assets from shopping malls to logistics centres. On the other hand, the motivation of structural reform will lead to the close down of outdated factory and unemployment. More industrial lands and old factories are anticipated to be converted for commercial or office use in the long term.
 
The benefits of Belt and Road
 
The absorption of overcapacity will help China from hard landing, and the Asian Infrastructure Investment Bank initiated and backed by China government will attract more foreign capital to build the infrastructure and the asset upgrade. Besides, the government will cooperate with the private sector to facilitate SOE reforms. It provides favorable policies to benefit productive private enterprises and promotes public private partnership (PPP) and partners with local landlords and enterprises for local infrastructure and real estate projects.
 
Improving the living quality of the society
 
More environmental related measures and actions will be taken to control air and all kinds of pollution. The government will also help poor families lifting out of poverty and improve their living standard. The government has launched 1) a 100 billion yuan program to help rural people to transform their skillset for technology and service industry and 2) over 800 billion yuan investment to build a larger high-speed railway network. These policies will further promote urbanization and encourage more rural people to move to the cities and participate in the service industry. More real estate activities will be driven alongside with the railway network. Domestic consumption will be benefited by improving people’s living quality, more related commercial activities and opportunities will be driven.
 
2016 is a tough year given the slowdown of the economy, volatility of stock market and world currency environment. It’s a challenge for China to balance economy growth and structural reform. However, the government is leading the country to the right direction by launching a mid to long term reform. Although some real estate players had a successful story by doing speculative real estate investments in the past, funds and managers are advised to take a long term view, build a stronger team to add value, knowhow and technology on the assets. With the country’s strong economic fundamental, the 13th Five-Year Plan gives us more confidence to achieve a more healthy and sustainable economy in the next five years.


 

 



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