For 2014, Shanghai residential market experienced ups and downs amid the overall economic downturn in China. The transaction volume of Shanghai residential market for the whole year was 9.56 million sqm, down 24.9% y-o-y while the average home price was RMB 26,930 psm, up 13.1% y-o-y.
Nonetheless, market sentiment of residential market in Shanghai improved in the second half of the year, following the new interest rate cut and newly relaxed mortgage terms. Shanghai government had also reduced the personal housing provident fund loan interest rate from 4.50% to 4.25% for a term longer than 5 years; from 4% to 3.75% for less than 5-year term.
Looking forward, residential market in Shanghai is expected to regain its momentum under government’s stimulus. The Central Bank had just announced a second round of interest rate cut effective from 1st March, benchmark interest rates lowered by 25 basis points to 5.35 percent. However, pressure for Shanghai developers to ease the mounting inventory especially for high-end residential properties is still high.
For office market, the net absorption in Q4 2014 was the highest throughout the year. Average price remained stable at RMB 25,606 psm at the end of 2014. Despite surging net absorption vacancy rate for Grade A office still increased 0.6 percentage points q-o-q to 7.4%, due to the opening of new office buildings in Lujiazui, including Lujiazui Century Financial Plaza Tower 3.
In December 2014, State Council approved plans to set up three more free-trade zones in Shanghai including Lujiazui, Jinqiao and Zhangjiang. Accordingly, demand for high-quality office is expected to trend up. There will be eight new office projects completed in 2015, six of which are located at Puxi. Decentralisation trend is likely to continue as new supply in core district is limited. Rental trends between Pudong and Puxi may also show diversified trends.
For retail property, net absorption hit its year-high in December 2014 involving a total transaction volume of over 250,000 sqm. Vacancy rate has increased by 1.2 percentage points q-o-q to 5.4% due to new supply in Pudong and vigorous competition from online retail business
Regarding new retail space supply in 2015, Shanghai Disney shopping mall is expected to attract attention from retailers. The mall is expected to be completed in autumn 2015 providing 50,000 sqm of retail areas complementing the Disney resort opening in December 2015. The Disney Resort along with the expansion of free trade zone would bring new energy to the retail market in Shanghai.