China and the United States announced on Friday (December 13) they had agreed to the terms of a “Phase-One” trade deal. Although details are still emerging, reports indicate the agreement involves the United States reducing some tariffs on Chinese goods and China committing to purchasing a substantial volume of U.S. agricultural, energy and manufactured goods.
Media reported that the deal also addresses a range of other issues, such as intellectual property protection, technology transfers, currency devaluation, the opening-up of China’s financial sector and dispute resolution.
UBS expects the deal to help stabilize China’s GDP growth at around 6 percent in 2020. Fixed-asset investment in the manufacturing sector and foreign trade are likely to experience a mild recovery, while the RMB is expected to strengthen gradually and then stabilize.
What does it mean for real estate?
The Phase-One trade deal is expected to provide a short-term boost to economic growth; support the gradual recovery of business sentiment; and encourage occupiers to commit to expansionary moves — all of which should ensure a mild recovery in office demand in 2020, notes CBRE. However, the large volume of new supply will continue to exert considerable pressure on rents.
The agreement’s inclusion of measures to expedite the removal of foreign investment barriers in the financial industry will accelerate the opening of this sector. China will completely remove foreign ownership caps on life insurance, securities and futures companies in 2020, a move that is likely to stimulate new leasing demand from firms in these subsectors.
Indications of an agreement on issues related to intellectual property and technology transfer may also provide Chinese and U.S. tech companies with the confidence to roll out investment and expansion plans in China next year.
While China’s retail and logistics property markets have been largely shielded from the impact of the trade conflict, news of a deal is expected to improve consumer confidence and boost shoppers’ willingness to spend. The shift in manufacturing — particularly of labor-intensive goods — out of China will continue and is now firmly established as a long-term trend.
On the real estate investment front, CBRE expects investors to react positively to the Phase-One deal. In particular, the lower risk of RMB devaluation and volatility will come as welcome news for cross-border investors in China.
