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Shanghai Showdown
The Paris of the East is becoming an investor’s hotspot international
| Text : Ajay Shamdasani | Photo : www.thinkstockphotos.com |
Amid much fanfare for the 2010 World Expo Shanghai China, to be held from May 1 to October 31, the event’s theme “Better City, Better Life” embodies both Shanghai and China’s upward trajectory as a 21st century economic and cultural centre. Compared to most world’s fairs, the Expo is expected to generate more visitors than in past years.
With more than 190 countries and above 50 international organizations participating in the event, Shanghai World Expo, the largest ever in both area and numbers, China estimates almost 100 world leaders and 70 to 100 million visitors. And as China’s biggest economic engine, it is unsurprising Shanghai ranked as the second in the residential market in CB Richard Ellis’ (CBRE’s) China Property Market Scoreboard 2009-2010, given its purchasing power, growth potential and market scale alongside a huge population and large volume of residential sales.
CBRE and the Shanghai Statistics Bureau ranked Shanghai second in “’per capita disposable income’” and eighth for housing purchasing power – hence its high residential market ranking. Similarly, according to Jones Lang LaSalle’s (JLL’s) Shanghai Property Review: Quarter 1 2010, the quarter ended with a strong pent up demand for residences.
Sales volume in Shanghai’s primary market dropped to almost record lows in January and February following a fourth quarter buying spree as purchasers responded to tighter regulations. Shanghai’s total January sales were lower than any month since detailed records started during the third quarter of 2004, says JLL.
Official data shows Shanghai’s home price growth rates are becoming more moderate. The average home price in the city was RMB8,182 per square metre. In 2005, housing prices grew 22 percent. Between 2006 and 2008, they grew 89 percent in Beijing to RMB11,648 per square metre, while average Shanghai’s home prices for same period grew 60 percent to RMB8,502 per square metre.
Similarly, February’s figures were lower still, owing to the Spring Festival. Uncertainty about new regulations hurt home prices and temporarily kept purchasers away. However, prices experienced marginal growth in January and February, with the government’s CREIS index evidencing a rise of 0.38 percent in January and 1.10 percent in February.
As of February, CREIS Index stood at 4246, up from a high of 3095 in July 2008 and a trough of 2,900 in March 2009. Up to February 20, 2010, Macquarie Research, CREIS and NDRC data concluded that year-to-date price increases in Shanghai were up 2.1 percent versus 2.5 percent for major Chinese cities.
Macquarie observed that prices increases for Shanghai flats were five-plus percent in 2010, down from increases of six per cent last year. Macquarie and CREIS data showed that monthly sales performances for Shanghai’s weekly volume of units sold stood at 5,500 units.
According to JLL, market sentiment changed in March as sales transactions rose. Sales in the second half of March rose 94 percent compared to the first half. Few developers have lowered prices and few will probably do so, says JLL, adding it expects sales volumes to maintain a sustained increase when buyers are confident in the new rules.
Mass market aside, JLL’s data shows it was a quiet quarter for the luxury residential market, which experienced slow sales in the first quarter and few transactions. For example, Central Residence Phase II, sold only sold two units in the first quarter versus 24 units in the fourth quarter of 2009.
Likewise, Bound of Bund sold only seven units this quarter while 77 units were purchased in the last quarter of 2009.
Similarly, CBRE’s Market View People’s Republic of China First Quarter 2010, also noted that Shanghai’s luxury residential growth rates were also impacted by the Festival, with high-end flats seeing transaction volume shrink at start of year.
Weak sentiment has caused many developers to halt new launches until prices rebound, says JLL. Accordingly, the quarter saw but one substantial new launch: Bund House launched 86 new units in January and sold only 25 as of the end of the first week of April – a weak showing given it sold 66 units immediately after its last launch in August 2009.
Notwithstanding poor sales demand, sellers seem buoyant and with limited supply, prices remain static. Moreover, developers are not offering discounts and seem as equally confident as homeowners.
Capital values for Shanghai’s luxury apartments during the first quarter were stagnant at RMB55,237 per sqm, on average – up 0.3 per cent quarter-on-quarter, and up 15.5 percent year-on-year. Developers will probably release more new projects in the next two quarters as sales increase and comfort grows with the new regulations.
The leasing market is slowly recovering: expatriates in Shanghai increased before Chinese New Year and rents for such flats rose in the first quarter as rents dropped. The average rent for luxury apartments rose by one per cent quarter-on-quarter to RMB185.5 per sqm per month – 186, up one per cent quarter-on-quarter, and down 2.8 percent year-on-year. Vacancies stood at 17.6 percent.
Despite smaller price growth from the previous quarter, CBRE figures showed average price increases of 2.9 per cent to RMB 44240 psm. Conversely the average rent of apartments fell by 0.4 per cent to RMB 147.1 per square metre per month.
However, real estate investment seemed active: several large block deals were penned in the first quarter given Shanghai’s strong long-term potential. Initial JLL figures suggest “a total of RMB 18.9 billion of en-bloc transactions for the first quarter”. It appears Shanghai will surpass or meet last year’s total transaction value.
More foreign investors were noticed compared to the second half of 2009. Also, one of the biggest property portfolio sales in China occurred: “CapitaLand purchased Orient Overseas Developments Limited (OODL) for RMB 15 billion in January, which contained a real estate portfolio worth RMB13.56 billion. OODL is a subsidiary of Orient Overseas International Limited,” said JLL.
CapitaLand materials indicate 35 percent of the portfolio’s total space is within Shanghai’s city limits, valued at RMB9.89 billion, and includes a large project in nearby Huaqiao in Kunshan. Another key deal was the Shanghai Garden Plaza (SGP) transaction during the first quarter. In February, Shanghai-based developer Forte Land, announced it bought SGP from Goldman Sachs for RMB2.2 billion. Located in Changning District, SGP has a total gross floor area of 97,227 square-metre. “Goldman Sachs purchased the property from Daito Trust Construction for RMB1.4 billion in 2007,” said JLL.
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