DTZ Foresight

China Fair Value : Slowdown yet to dampen China attractiveness - Q2 2013

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In Q2 2013, China’s GDP growth forecast for the year was downgraded to just over 7%, representing the lowest level of GDP growth in 23 years. Slowing growth has resulted in increased risk aversion as occupier demand weakens. Despite this, Chinese real estate is expected to continue to offer investors good risk-adjusted returns over the five-year investment horizon at current pricing. This is reflected in the latest DTZ Fair Value IndexTM (FVI) score which stood at 88 at the end of Q2 2013 – this represents the highest score in the Asia Pacific region.

The five-year government bond yield, which we use as the risk-free rate to base our required returns, edged up during the quarter as credit conditions have tightened in a move by the government to help deflate asset bubbles and reduce dependency on credit. Despite this, required returns remain low, reinforcing the attractiveness of property investment compared to fixed-income assets.

Expected returns also reduced as we made several downgrades to our forecasts in light of weaker economic prospects. This saw the number of Hot markets fall from 15 in Q1 to 13 in Q2.

Source : DTZ (Groupe UGL)

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