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China

US Fed interest rate hike has minimal impact to China property


​The US Federal Open Market Committee (FOMC) announced Wednesday that The Federal Reserve increased its benchmark interest rate by 0.25 percent to 0.50 - 0.75 percent, marking its first rate hike since last December and only the second in a decade. This will have a widespread impact in Asia and China in particular, as the US rate hike will likely increase capital outflows in the region leading to currency depreciations.

More outbound flows expected 

Outbound capital flows will continue to pressure down the RMB. Since late of 2015, the People’s Bank of China (PBoC) has addressed this pressure by selling its dollar-denominated securities and buying yuan. Based on PBoC’s latest data, China’s foreign exchange reserve fell for a fifth straight month in November, dropping another USD 69.06 billion to USD 3.05 trillion. Over the past year, the PBoC has spent almost USD 1 trillion to defend its currency, with limited ability to reverse the trend. As another way to counter the downward trend, Chinese authorities will likely tighten its grip on capital controls making it more difficult for domestic investors to invest overseas.  

But impact to Chinese property market should be limited 

The US Fed’s rate hikes should have limited impact on China’s property market price and demand. While capital outflows are expected, China’s tightening of capital controls will leave most Chinese investors limited options but to invest domestically. Taking 3Q15 as an example, Chinese investors only accounted for 49 percent of all the transactions in China, but in 3Q16 domestic investors was 93% of total. We continue to expect Chinese investors to be the main buyers in China’s market, and Chinese insurance companies to expand their real estate exposure in the domestic market. With ample liquidity in China, we expect prices to remain high, and with tons of money chasing limited supply, yield compressions will likely continue as well, especially in tier-one cities such as Shanghai, Beijing, Shenzhen and Guangzhou. 

​It’s worth noting that short-term interest rates in China showed no co-movements with the U.S., because of its large economy and independent monetary policy cycle.

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About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 70,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. As of September 30, 2016, its investment management business, LaSalle Investment Management, has $59.7 billion of real estate assets under management.  JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, www.jll.com

JLL has over 50 years of experience in Asia Pacific, with 36,000 employees operating in 94 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the fifth consecutive year by Real Capital Analytics.​ www.jll.com/asiapacific  

​In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2016, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country.  www.joneslanglasalle.com.cn​​​​​​​​​​