Understanding the emerging commercial property cycles in China

Thesis (PhD)-- University of Melbourne, Faculty of Architecture Building and Planning, 2007.This thesis examines cyclical behaviours in the commercial property market system in China since it started to emerge in the early 1990s. It shows the importance of the economic transition in explaining commercial property cycles in China. Although the price mechanism that underpins the emerging Chinese property market system has started to play a dominant role, the transition process from the planned economy to the market economy has influenced the inter-relationship of the commercial property market system, causing low effective demand and supply lag through land supply, money flow, investment behaviour, planning control and change of urban built form. This has altered the cyclical behaviour of the commercial property market at the aggregate level. The basic driver remains to be the state-market interplays in relation to market behavioural changes. To answer the research question, two commercial property markets, namely Guangzhou and Hainan, were chosen for studying the equilibrium and adjustment processes using semi-structured interviews and statistical data. Standard property cycle theory was applied and special elements of the imbalanced nature of the process of structural change were also introduced in the analysis. Using a general equilibrium approach to analyse the selected commercial property markets, the study recognises the important role the state plays in the balance of space demand and supply at the submarket level. Within a structure of office markets, which concerns space utilisation and asset investment, the study compares various time series indicating office cycles and features relating to performance. Within the same structure, data from semi-structured interviews are also examined to provide insights on the market changes and their underlying mechanisms. Commercial property cycles in China and in mature markets have significant differences. This is mainly due to the differences in their underlying structural settings. The moving of the Chinese economic structure towards a market-led system may reduce the level of behavioural differences between mature and emerging property markets. However, the state remains to be the most influential factor to shape commercial property cycles in the process of transforming commercial property sectors and urban physical built forms in China. The study identifies close links between the economic transition and office cycles in selected markets. And the impact of the state on office market cycles is significant. It also shows the volatility and length of the recession are correlated to the economic base of each office market. In place with a simple and small-scale economy such as Hainan, the scope of the 1990s property cycle is significant. The adverse effect tends to be prolonged in these cases. The approach of the state economic reform is a key driver in amplifying or reducing the scale of property cycles. This is evidenced in both Hainan and Guangzhou markets in initial upsurges and later recessions. The state's deliberate attempt in creating and altering the market structure, either radical or gradual, has substantial impacts on the stability, hence cyclicality of the Chinese commercial property market. It is the fundamental change in the property rights system in China and the imbalance of socio-economic and urban physical structural transformations that drive commercial property cycles in China. Key words Commercial property Cycles Transition China Stat