Shanghai Expat :: View topic - Falling real estate prices: What's your take?

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Relocation and Moving - Falling real estate prices: What's your take?

Wasabichez - May 25, 2005 - 11:03 AM
Post subject: Falling real estate prices: What's your take?

As most of us know, Shanghai's real estate is over priced and that the bubble is getting ready to deflate.....I don't think the word is pop because I figure the goverment will try not to let it collapse too fast. But I find it very funny how realtors are so in denial about the price valuations. The prices of apartment property here is already more than the price it should be in comparison to quality locations in USA.

WHATS YOUR TAKE ON SHANGHAI PROPERTY VALUE? ANY SPECIFIC AREAS?

Lets makes a discussion panel here. The way I see it, from my conversations with realtors, they either fake ignorance or are just plain greedy.

If property is to be overvalued, I would say the JingAn and Luwan are ok(I could be wrong Razz

). But I live in Gubei and Gubei Phase 2 is being built. I figure by next year enough of it will be livable. It is already on the resale market for over 25K RMB psqm. Phase 2 is fully designed and better quality than even the newest complexes in Phase 1, yet Phase 1 landlords are selling crappily decorated apartments at Phase 2 prices. So as you can see the prices are DEFINITELY overpriced. The way I see it the reasonable pricing for those new Phase 1 complexes range should be 13-17K RMB psqm, in the short term. Since once Phase 2 is complete there will definitely be a surplus and many more apts of better quality forcing the newest complexes of Phase 1 to depreciate in value. Thats my take. Razz

lancesidecar - May 25, 2005 - 11:15 AM
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who knows?

resales in the USA were up 15% last year on the wings of what? a flat economy?

Magnolia - May 25, 2005 - 11:24 AM
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Without having done any serious research into purchasing property myself (don't want to be tied down to any one location), I would say that the property values are for the most part over-valued. Too many apartments are ridiculous prices without offering anything to warrant the rates. Shoddy costruction seems to be the norm and when an apartment that is 150sm is USD600,000 prior to the USD250,000 needed to decorate you would at least expect it to be built with an attention to details. How the majority of the population can be expected to spend high amounts on the average salaries is unknown to me.

When the bubble bursts, there are going to be a fair amount of people with negative equity and that is no place to be.

frenchlover1999 - May 25, 2005 - 12:25 PM
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Quote:

when an apartment that is 150sm is USD600,000 prior to the USD250,000 needed to decorate

I wonder where you have seen such prices in Shanghai. The most expensive I have seen was about 4MRMB for a 200+ sqm apartment in a luxury low-rise development in Xuhui district, 5 min walk to subway. Already decorated. With your 250k USD for decoration, you can buy a nice 150 sqm apartment in a condo in Xujiahui. In fact I would sell you mine for that price, without thinking twice.

rolento - May 25, 2005 - 12:41 PM
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some buildings i saw in Putong are empty condos, but still priced like those in Jing An, where there is a real demand for them.

it's a fake, done by selling to friends and sell back a few times to "cook" the price, so i heard from a taiwan real estate friend. by the way, he does that too.

Magnolia - May 25, 2005 - 12:49 PM
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They are around. Just opened a listing for an propery agent in a well known publication... 10million for 140sqm; 169sqm, 7.5million. Many do come out around RMB4 million (146sqm, 4.1million; 147sqm, 4.9 million) but that does not include decoration.

My apartment in XJH (which I rent) is shockingly expensive to buy. And the price of the decoration / renovation was almost as high as the apartment. Nothing in the apartment shows such expenditures. While I like the location, I would never even think about purchasing that apartment for less than a quarter of what the owner had paid.

Michael - May 25, 2005 - 12:56 PM
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I am starting to hear of alot of stories about people unable to sell. My wife showed me an article in Chinese about one of the infamous Wenzhou investors who pooled money and bought a few dozen units in the same complex. The article said they were in Shanghai recently to try to sell and the agent just showed them the list of 100 other units in this same complex who are also on the market.

I personally know someone who put a nice 3 BR 145 sqm for RMB 1.7M on the market, had a buyer, and in the middle of the negotiation, the direction switched and the buyer started asking for a much lower price.

Its already started, but how far will it go?

Magnolia - May 25, 2005 - 01:02 PM
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Speaking of the flood of available apartments, did I recently read that one of the controls the government has/will set into place restricts resale unless a property is paid in full? Meaning that the buyer must come up with the cash for the entire apartment in order for the seller to have the deed transferred? It was somehow tied into mortgages... anyone know?

Michael - May 25, 2005 - 01:16 PM
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When we sold, we had to pay off the old mortgage in full before the new mortgage for the buyers was written.. so we had to pull together a big wad of cash that we got back when the proceeds from the closing were paid out.

I hear they have required higher downpayments for downtown apartments and there is a cap gains tax now ( was not when we sold ).

frenchlover1999 - May 25, 2005 - 01:18 PM
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Interesting. A major crash would be good news for some of us... We can then buy at much lower price... while all those who bought at the top of the bubble cry in despair. In the long term, i.e. after the war with Taiwan, after the war with the US, after the flu epidemic, after the civil-war against the various sects is over, etc... prices will go up again and we will be rich.

Magnolia: are you staying in "East Manhattan"? Even there is not that expensive, unless your landlord is a clueless overseas Chinese who bought over the internet (or unless you have a rooftop unit and renovation included building up a superstructure on top of it).

Magnolia - May 25, 2005 - 01:26 PM
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No, I don't stay there. But it is in a more central location than Manhatten. The prices I listed above are not for my individual apartment (although I know what the cost for the apartment and renovation was and it was ridiculous for what it is).

Michael, that was what I had read. Thanks!

hammerforlife - May 25, 2005 - 02:07 PM
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Does any know whether there is an index or something similar for house prices that will show house price movements over time in Shanghai, as they do in many other countries, or is it just by word of mouth?

busyexpat - May 25, 2005 - 03:00 PM
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Readers and posters here might also be interested in taking a look at the following link to another Shanghai real estate discussion:

http://www.greenmonkey.com.cn/gmforum/viewtopic.php?p=24#24

Also:

* Capital gains tax approx. = 5.5% (ONLY if selling residential property within 365 days of purchase...0% otherwise).

* There are now extra taxes on places that remain unoccupied for greater than 2 years.

* Mortgages have to be paid back in full. Yes, true...but this actually hurts the little people more than anything else...this won't affect speculators much. I almost believe it was speculators who suggested this law change, since it protects them from financial loss by preventing a flood of 'little people's' apartments onto the market. There are ways around this law anyway, which the market caught onto from day one.

The market is definitely on it's way down....and it has a potentially long way to drop...up to 50% potential drop in some areas I would say. The overall market drop is likely to not exceed 20-30%. Some places won't drop at all. The inner city won't drop. Old houses won't drop.

Lastly, for frenchlover1999....the most expensive apartment I've seen was RMB35mil....over 300sqm penthouse triplex, fully-renovated, overlooking the Huangpu River in Pudong...and across the road from Jinmao Tower and the future WTC tower. Level one had a 220sqm apartment for a measly 8mil. Funny thing is, frenchlover, I think these apartments were worth it.

frenchlover1999 - May 25, 2005 - 03:42 PM
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Quote:

Lastly, for frenchlover1999....the most expensive apartment I've seen was RMB35mil....over 300sqm penthouse triplex, fully-renovated, overlooking the Huangpu River in Pudong...and across the road from Jinmao Tower and the future WTC tower. Level one had a 220sqm apartment for a measly 8mil. Funny thing is, frenchlover, I think these apartments were worth it.

Ok you seem very well informed or at least very self-confident. Both equally good qualities. Would be interested to know the name of the condo. This is far more expensive that anything I have seen in Shanghai, with the exceptions of old villas. For this price you could buy high quality apartments in Paris for example (another bubbling market).

Nadgeee - May 25, 2005 - 06:46 PM
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i think it comes down to speculation. sydney is experiencing the same thing. the sharp rise during olympic brought on by speculators have had a nice ride but it is time for reality.

i know nothing about shanghai. but could the development of Pudong and the recent economic activities be shanghai's olympics?

chunki - May 25, 2005 - 10:16 PM
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Has anyone read Marc Faber's book "Tomorrow's Gold: Asia's Age of Discovery". He makes the fairly obvious point that the property bubbles around the world are being caused by the US' absurdly loose monetary policy, which is pumping US dollars into the global economy at an alarming rate.

But the interesting thing is that the creation of bubbles almost by definition causes other assets to be undervalued. All the excess liquidity first flows to one place, and then when the bubble starts to burst, it just flows somewhere else. So if you're an investor, the really useful question in Shanghai would be where the money's going to flow to once the property bubble bursts.

Maybe it's not a coincidence that while property prices are at an all-time high, share prices on the local stock exchange are at an all time low (people say it's only at a 6-year low, but that doesn't account for the fact that the indexes aren't the same as they were 6 years ago). I wonder if anyone's brave enough for a punt on the A-share market?

Having said that, Marc Faber's really bullish about the Shanghai property market over the long term. He says somewhere that he thinks property prices in Shanghai could even be higher than in New York after not too long (20 years or something).

Tim
www.chunkichilli.com

knockknock_ca - May 26, 2005 - 12:11 AM
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frenchlover1999 wrote:

Quote:

from bloomberg news, 2002.12.28:

A classical European fountain adorns the entrance area of the Shimao Riviera Garden Saturday November 28, 2002 in Shanghai, China. China's Shimao Group sold the luxury penthouse apartment for 35.5 million yuan (US$4.29 million), the highest price ever paid for an apartment in China.:

frenchlover1999 - May 26, 2005 - 12:37 AM
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Thats for the info. More and more interesting indeed. At 300sqm, that would be 118k RMB per sqm... in 2002. As far as I know, apartments in this building (maybe lower floors) are currently selling around 40k/sqm, in 2005. During the same 3 year period, more modests apartments I own have more than doubled their value (this also reflects the general market trend). My guess is that this price tag of 35millions had nothing to do with "market value", thus is not very relevant to market discussions in general and other considerations came into play. This news has excellent entertainment value however. Anyway this kind of talk shows the local real estate market is even crazier than I thought. Lets pile up the cash and get ready to go shopping when the bubble finally bursts!

Magnolia - May 26, 2005 - 11:53 AM
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Entertainment value or not, it does show that prices in Shanghai do range greatly.

chunki - May 26, 2005 - 01:42 PM
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Average daily sales down 60 percent. Secondary prices down 15-20 percent since March. Bubble well and truly burst. Read about it here

http://news3.xinhuanet.com/english/2005-05/24/content_2993672.htm

Tim
www.chunkichilli.com

benyu2004 - May 26, 2005 - 03:50 PM
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Quote:

It has few rooms light on when I look at the building everyday. Mid-level condo can be bought around US$3.5K/sqm now. BTW, please be aware of calculating its value, it ain't real 'condo' as definition in US, it only has limited 70 yrs 'ownership' according to law in China.

Now, the market needs serious adjustment with downside bias.

Quote:

The market is definitely on it's way down....and it has a potentially long way to drop...up to 50% potential drop in some areas I would say. The overall market drop is likely to not exceed 20-30%. Some places won't drop at all. The inner city won't drop. Old houses won't drop.

I agree with you.

Wasabichez - May 26, 2005 - 09:39 PM
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"Inner City" means what? There are still various spots in the inner city that have tons of residential real estate popping up that could house tonza people. There are still lots of places in the inner city that should follow the 20% drop.

Victorian - May 26, 2005 - 11:32 PM
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I must say the market in Shanghai was like Bangkok and Hong Kong before the Asian Financial Crisis back in the 1997, property prices doubled, triple, ... every year with empty buildings piling up in the supply chain.

All the sudden after the NPC this year, the Municiple and Central Government imposed so many "cool down" measures, with each measure taking effect almost overnight after its announcement. I think the fall we're witnessing now are created by small investors who can't get mortages or short of spare cash. A real drop will happen when panic selling starts. So the question should be "what will set off panic selling?", 20%, 30%, 40%, 50% drop? What will the government do, or not do, to prevent that?

I think the biggest problem with Shanghai is the planning of the city. The city is flooded with high end properties which locals can't affort and there aren't enough expats to fill them. Only a few well managed high end complexes are filled, others are half or almost empty for years. There were 18 blocks of serviced apartments completed last year and 22 blocks to be completed by the end of this year. The so called New Gubei Area consists of many massive developments built by 8 developers, thousands of flats from this area alone will flood the market in these two years. The supply will be overwhelming.

There aren't enough low end properties within the Outer Ring Road to satisfy the need of the general public and there aren't much land left for developing low end housing either. The general public are the ones who're actually living and working and stablising the property market. I don't think the government has got the ratio of low:mid:high range properties right in terms of planning. Very soon, even the low end properties inside the Outer Ring Road will be out of reach to the general public, the market will be even more vulerable to a sharp drop.

izanami - May 27, 2005 - 12:13 AM
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It is not surprising that prices are coming down and that transaction volume has been very thin after the measures introduced in early march and recently again in mid mid. I think we need to make a distinction between short term movements and mid to long term growth. What we are seeing now is probably a market correction rather than a market crash. My guess is that prices of properties will return to their 'real value' i.e. apartments located in real obscure location will suffer greatly and second hand market will suffer pretty nastily as speculators are trying to offload their properties. For an apartment in Pudong that commands spectacular view of the Huangpu River, a beautiful villa in the French Concession, an apartment beside Xintiandi...I'm not sure if the prices will necessarily dive down.

There is genuine demand out there driven by real economic growth (if you look at the office real estate sector it speaks of a different story as opposed to residential real estate, many transactions going, rising rentals and very low vacancy rates), urbanisation and the rapid rise of Shanghai as a metropolis. There is a reason why there are so many well-educated and skilled foreigners who are in China trying so hard to find work here and staying on.

Also, we should bear in mind that lots of wealth of local Chinese is in real estate and mortgages constitute a huge chunk of local banks' portfolio, if the real estate market really crashes, the effect would be rather disastrous on social stability and the health of the already very frail banking system. The central government's intention is to slow down the rate of growth of real estate prices and to improve the balance composition of supply to cater for the low-income families rather than to drive prices down. Maybe we are seeing this 'bubble' (god I hate the term 'bubble') being deflated rather than being burst.

The question then comes into mind is that is the government capable of successfully executing this? I think so and I hope so. They've pretty decent track record with economic policy (ok...this is another long debate) and so far I must say that their approach to the real estate market has been generally rational and intelligent. It is a good thing that they are doing something about the market now, it doesn't make sense for prices to grow at more than 15% year on year for a long while. Allowing prices to escalate un restrained further due to speculative purchases will only cause a harder fall when it eventually comes about.

Actually noone really knows what will happen after 70 years because it was only not long ago that the concept of transferrable property rights was created. What will probably happen is that the owner of the property will have to pay the government the fees for land use rights and get it regranted for another 70 years. It is a common practice for leasehold real estate in other countries.

izanami - May 27, 2005 - 12:21 AM
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Victorian: your comment on urban planning is interesting. I read in the local papers that they want to increase the price of the subway to discourage usage as the subway is getting over loaded. Yet the government is trying to help reduce urban density in the inner ring by getting people to move to the 12 satellite towns.

Actually while the new property units coming onstream within the inner ring may seem to be 'flooding' the market, it is also true that land in the inner city is highly limited. In fact, demand for homes in the inner city far outstrips the supply. Maybe it looks like an oversupply now, but give it another year or so, I think the vacancy will probably be absorbed. Not enough expats? Serviced apartments are doing very well in Shanghai due to the expat crowd and as expat packages get increasingly localised, I predict there will be a new surge of demand for rental accommodation. also, we are forgetting that not only expats need to rent apartments, local chinese coming in from outside China need to do so too.

busyexpat - June 05, 2005 - 03:50 AM
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I've now left Shanghai because I couldn't get things done. If I wanted to do some random things in Shanghai one day, then I would be limited to one, two or three at the most. If I were in say, Hong Kong, I could do 10 random things, I am sure.

An economy is all about getting things done and if you can't get what you need done, well, then you haven't got a well-functioning economy, you haven't got an economy, or you are dead...and real estate prices reflect, or at least should reflect, the health or dis-health of the economy.

China's stockmarket is at a six-year low, and has declined ever since it opened, for good reason. Chinese people in general, are notoriously poor at investment. This is part of the reason so many Chinese people gamble away so much money in China and overseas...they don't have good heads for risks. On top of this, because so much money comes to so many officials so easily, they are just as readily willing to invest money in real estate and stocks, without the risk assessment normally associated with less corrupt regimes. Therefore, the Chinese stock market was overvalued by ignorant purchasers and is seeing its rightful decline. Shanghai real estate will do the same, since some of its sectors have seen some, or a lot of, similar ignorant purchasing.

The lack of media freedom is clearly to blame. If there were freedom of the media in Shanghai and the rest of China...then the message of the *real* life of Shanghai would actually get out to the 1.3 billion Chinese people in China that their beloved commercial center is actually a farce. I like to call the current "Shanghai Dream" situation, a "media bottleneck"....where the fantastical routing of the Chinese peoples' imaginaries is funneled into a few topics allowed into the Chinese media arena...this inevitably creates psychic overvaluation, which by inflection, leads to physical overinvestment. Every Chinese person (as well as foreigners) I have met outside of Shanghai, that has not been to Shanghai for more than a few weeks or not at all, has this fantastic vision of the leading local economy in China and that if they had the opportunity, it would be their dream to work there.

busyexpat - June 08, 2005 - 10:54 PM
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Quote:

sydney is experiencing the same thing. the sharp rise during olympic brought on by speculators have had a nice ride but it is time for reality.

I disagree...sydney is a fantastic, multicultural, multifaceted city right by the ocean. Just about all the people are friendly. The streets are clean, there is nature...birds, insects...things are buzzing...it's great. Sydney may have seen some speculation due to the Olympics games, but since I and other people I know love Sydney so much, I (if I had the money) and others would pay the higher prices. It's totally unlike Shanghai, because Shanghai lacks so much in the way of infrastructure and quality of living.

tinayang - June 08, 2005 - 11:59 PM
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I agree with your comments about getting things done....usually in top gear I would have loads of things to initiate, progress or complete in a day, whereas here it's hamster on a wheel syndrome just to get 2 or 3 things sorted out At the moment I see it as fun and I still like this place a lot, but I suppose I'll have to lower my expectations as regards what is achievable in a year and extend the time frame by 1 or 2 years!

chunki - June 09, 2005 - 05:35 AM
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Maybe I'm not wrong about the stock market. The A-shares were up 8 percent yesterday.

Tim
www.chunkichilli.com

izanami - June 12, 2005 - 11:34 PM
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It's hard to tell the performance of the stockmarket simply from a short time horizon. Besides, with a low base to start off with, an 8% rise is probably rather small in nominal terms.

Victorian - June 13, 2005 - 08:02 PM
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An article on the subject from HK's SCMP - Monday, June 13, 2005

Shanghai warily prods at its own bubble

One area in which HK's mainland rival has managed to achieve parity is its property prices, we see in the second and final part of his look at competition between the two cities

MARK O'NEILL

In the past few years, Shanghai's flats and offices have become as expensive as those in Hong Kong.

As happened in Hong Kong, the six-year property boom in Shanghai has brought billions of dollars into the city but pushed up land and labour costs so fast that manufacturers, domestic and foreign, are moving out of the city to set up their factories.

While Hong Kong adjusted to the larger costs with higher added-value businesses, the post-boom restructuring has barely started in Shanghai.

Until the late 1990s, Shanghai relied on manufacturing industry and foreign investment for growth. From 1999, it was property development that became the hottest business in town.

Last year, the property sector accounted for 8.4 per cent of the city's gross domestic product, up from 5.2 per cent in 1999.

Tao Dong, chief economist for non-Japan Asia at Credit Suisse First Boston, estimates that property accounted for as much as 19.5 per cent of GDP, if related industries such as steel and electrical appliances were included.

In 2003, the city government earned 21.6 billion yuan from land sales, enough to pay for about 30 per cent of the city's urban development that year.

With so much at stake, it is no surprise that Shanghai is moving cautiously to puncture the property bubble, as ordered by Beijing.

However, it cannot afford to wait too long.

Cities in Jiangsu and Zhejiang provinces are falling over themselves to attract investors, competing with each other to offer land and labour on cheaper terms than does Shanghai. Hong Kong has similarly ambitious neighbours in the Pearl River Delta but they pose less competition because there is a bigger difference in productivity.

But there is no such gap between Shanghai and its rivals in east China, especially Suzhou, which has emerged as its biggest competitor.

It was in 2003 that Suzhou first overtook Shanghai in contracted foreign direct investment, with US$12.5 billion, against US$11.1 billion for Shanghai. Last year, the city attracted US$14.7 billion, again exceeding Shanghai's US$14.1 billion.

Land in Suzhou Industrial Park costs US$20 per square metre, less than 50 per cent of prices in Zhangjiang high-technology park in Pudong. Wages in Shanghai are 30 per cent higher than in Suzhou, which offers investors lower tax privileges.

Suzhou is just 45 minutes by train from Shanghai.

It is easy to see why Infineon Technologies, the world's sixth-biggest semiconductor maker, chose Suzhou in October 2003 as the site for a plant to make a billion chips a year. It is exactly the kind of hi-tech project Shanghai wants.

Another worrying trend is that old customers are also leaving.

In August last year, 3M broke ground on a factory in the Suzhou park, its first manufacturing facility outside Shanghai.

In 2003, Unilever moved its production of household and personal care products from Shanghai to Hefei, capital of Anhui, where the average monthly wage is 600 yuan to 700 yuan, giving it a saving of at least 30 per cent from Shanghai.

Shanghai began to lose its industry in the 1990s as part of the mass redevelopment of the inner city, which involved the demolition of textile and light industry plants and their migration to neighbouring provinces and even as far as Xinjiang in the west.

Light industry's share of industrial output in Shanghai fell from 43.4 per cent in 1997 to 30.3 per cent in 2003 while that of heavy industry - mainly vehicles, steel and petrochemicals - rose from 56.6 per cent to 69.7 per cent.

The city planned to replace these lost factories with hi-tech plants and the service sector, including finance, securities, accounting and logistics.

But this has not happened. Last year, the share of the service sector in Shanghai's GDP fell to 47.9 per cent, down from 48.4 per cent in 2003 and a peak of 51 per cent in 2002. The share of the financial industry fell to 9.96 per cent last year, the same as in 1995, down from 10.1 per cent in 2003 and 15.1 per cent in 2000.

Instead, Shanghai's fast-growing property industry is edging out the growth of others. High costs are making businesses think twice before setting up shop.

It is also paying a price as professionals choose to live in cheaper cities such as Beijing, Shenzhen and Guangzhou and thousands of long-term residents express anger at not being able to afford homes.

The average price of a flat has nearly doubled from 3,326 yuan per square metre in 2000 to 6,385 yuan last year.

Hong Kong experienced a similar surge in the 1990s but it was a largely home-grown bubble. The city's middle class bore the brunt of the downturn when the market collapsed.

The Shanghai property boom may rest on a bubble, but with a bigger speculative element, in the form of money from Taiwan, Hong Kong and overseas - money that could leave abruptly in the event of a yuan revaluation, a downturn in the market or a surge in foreign stock markets. Demand from city residents is insufficient to sustain prices at their current level.

The high prices also carry a heavy risk to banks. At the end of March, outstanding loans by Shanghai banks to individuals to buy homes reached 121.6 billion yuan, an increase of 69 per cent over the same time a year ago, including 12.5 billion yuan in new mortgages in the first quarter of the year, an increase of 55 per cent over the same period last year.

Banks in Hong Kong did not suffer from bank runs, bankruptcies or massive defaults, even though the property market turned sour in the late 1990s. That may not be the case in Shanghai. [b]

busyexpat - June 14, 2005 - 01:46 AM
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Izanami is right. Shanghai's stock exchange is much smaller than those in Hong Kong and Tokyo, for example. An 8% rise is as easy as a 20% drop.

Major banking IPOs this year, and further listings of major China public companies in the coming months and years, with tons of new shares up for grabs, WILL have an effect on the property market. This is because funds normally channelled into the property sector will be diverted to purchase these new shares.

I can't say I completely agree with Mark O'Neill's opening statement that Shanghai's property prices are on a par with Hong Kong. Luxury real estate in prime locations in Shanghai averages RMB30km/2, whereas Hong Kong averages RMB60k plus. Regardless, I still think too much of Shanghai is far overvalued and will rightly see much decline.

If we are to view Shanghai as a company, and we try to value that company, then one major aspect of that valuation must based on the skills and ability of its staff members - Shanghai's people. I and others know all too well how shockingly poor real estate agents, police, sales clerks, waitresses and those pesky women on checkout aisles who incessantly point to products when you are trying to browse, treat and relate to customers and people. There are definitely exceptions to the rule of poor Shanghai service, but the important thing is averages.

Shanghai needs to reinvent itself as a respectful city with respectful people...and then market that concept to its population through media programming...and I don't think this is achievable through state planning alone.

ttesty - July 10, 2005 - 11:51 AM
Post subject: it's helpful to compare

It would be very helpful to compare Shanghai's average price per square meter to other major world cities ...

How do Shanghai's current "bubble" prices compare to current prices in New York, London, and Tokyo?

Has anyone seen any such comparisons done by authoritative sources?

I'll be looking for this, and will post whatever I find. Very Happy

ttesty - July 10, 2005 - 11:55 AM
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Busyexpat has given us a starting point for comparison, and one that is a bit more specific.

Let's compare: Luxury real estate in prime locations ...
- Shanghai averages RMB30k m/2,
- Hong Kong averages RMB60k plus.

Does anyone know the relevant average in New York, London or Tokyo?

IAmNotYao - July 10, 2005 - 12:43 PM
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Comparing NYC (for example) with Shanghai is comparing apples to organes. With NYC, the property tax you pay is outrageous on buying a place, plus the standard 6% commission when you sell, and not to mention the $600+ monthly maintenace fee you probably have. For a flipper, Shanghai is probably a better place to flip than the US. Even with the Chinese gov't imposed tax, it's small compared to taxed at ordinary income for properties held less than two years (there are exceptions) in the US. Anyways, I'm pretty new to Shanghai, based on the 40+ apartments I saw to rent, I'm not longer considering renting, even if I only stay for a year. That's my personal choice and investment objective...

ttesty wrote:

Wasabichez - July 14, 2005 - 03:01 PM
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As many local factors (meaning not US or HK or even other provinces' real estate prices.) I can think of to consider a valuation of local prices. I'm sure we all know it is all overpriced significantly so I don't know why some people still think its a good deal here. Maybe the only "good deals" that are stable and I doubt will change significantly are in city center meaning JingAn (near Nanjing Rd.), LuWan, and XuJiaHui (near LuWan).

I dropped by the broker today, he said the prices haven't changed. OK, I knew that was BS so I reworded the question to what are buyers offering and he said 18000 psqm. Still BS because a friend just got some price quotes for 15-18000. Not around 18000 only. Seriously, these brokers have to learn to not just cater to greedy landowners. Just think, you prefer to get more sales due to people who know a good deal, or a couple sales due to dumb people with too much money?

lliu316 - July 14, 2005 - 05:13 PM
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Interesting topic, especially since I am working in the real estate business, developing a project in Pudong. Although our project is a bit different from normal shanghai commercial real estate development, being the marketing director I do keep up with the market update.
Personally I am completely confident in the real estate market in shanghai, the bubbling effect is little if there is any. Here is my take on this:
1. The real estate price is supported by the economic growth.
The amazing speed of China’s economic growth and its stability are two main factors that made China the target of investors from all over the world. Gross Domestic Product has maintain a steady inclined at more than 8-9% annually since 1991, it event peaked more than 14% at 1992. Shanghai’s economical growth is even more dramatic, this year is the 14th year this city maintaining a double-digit GDP growth. Real Estate price is always on the front of any economic growth, its proven case after case in history.
2. The real estate price is supported by geographical location.
Since china started its economical reform changing from planed economy to market economy from 1978, Shanghai played a key spot geographically. Economical growth in China is led by 5 coastal cities, and shanghai not only being the biggest of those five, it played as the Financial Center and Import/Export shipping center. This advantage gives foreign investors, businesses a special interest in Shanghai.
3. The real estate price is supported by income.
Its true that recordable data shows that the average shanghainese’ income is 1300RMB, three concepts you have to consider. First of all the data is taken from those who pays income tax, which does not include the considerable amount people do not pay income tax to all their incomes if any at all. Secondly most of those who do not pay income tax are those who are making the big “bucks”. Combined tax for people making 6000RMB/mo is about 55%, I wouldn’t let the government take 55% of my income (that’s why I get paid over seas in the US instead of here). Thirdly, the huge population means that even a small portion of people can afford expensive real estate properties makes a considerable amount of customers to drive the market.
4. The real estate price is support by foreign investment. People from Hong Kong. Taipei and Singapore put in huge amount of investment into shanghai real estate market in the last 10 years. Compare to real estate price in those cities, shanghai price is DIRET CHEAP, just ask someone from those places they will tell you. They see the potential of economical development in shanghai and believing that tomorrow’s Shanghai is today’s Hong Kong, real estate price is bound to go up more. Plus most of them are taking advantage of the re-evaluating of RMB, which can bring them a huge extra income.
5. The real estate price is supported by the government.
Being one of the biggest economical sectors, the government is not going to let it drop dead. The huge tax income that the government receives from real estate sales drives the government to make policies to stabilize the market. The published new real estate laws and regulations was the product of this purpose. It did slow down the market and made certain section of real estate market to slightly go down, but its only to reinforce the market foundation.

The recent price drop is result of people not sure what these new regulations would do to the market. Its not because the market is going down, the customers are just being more careful of where to invest their money. They have their money set aside to invest in real estate, and that money is not going to go anywhere except the real estate market. Price drop is not from first hand real estate properties, but second hand houses. The individual owners freaked out a bit from the temporary slowing down, and decided to through out their properties at a lost, that’s a purely foolish act.

My speculation is this… The real estate market is going to start to go back up again in about next 3-6 months, some sections will go up faster than others, for example low priced residential properties will be growing much faster than already expensive villas and luxury apartments. So its not a bad time to consider to invest in that section in the up coming months.

My suggestion is… Two kinds of real estate investment is going to be your best bet if you are only buying to invest.
1. Investment Hotels: Basically you buy a property, and sign a “lease-back” contract with the developer to allow a hotel management company to use your property to operate, and in reture you get a fair share of the profit, usually more than 7% of the investment annually. Rules are different with different development, do your home work! In Shanghai, the quota for hotels rooms needed for the 2010 World expo has only finished 37%, huge shortage for them right now, expecially 4-5 stars hotel. Average hotel occupancy in Shanghai is more than 85% anuually, which is considered very high, which also means good profit for this type of investment. One good example for this type of investment property is Rendezvous Hotel on Yanan Lu.
2. 5A class office buildings: the price for office buildings did not go up with the residencial real estate market in the last few years, but its climbing at a steady rate. There is a huge shortage for office buildings right now as well. This type of product is good for relatively long term investment

Cheers!

dfoo - July 14, 2005 - 09:09 PM
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You can travel around Shanghai at night and see that many many of the high rise buildings are mostly empty. Only about 20% of many of the buildings have any lights on. This to me means that either the apartments were not sold (which is unlikely), or they were sold to people who bought them for investment purposes and they are not lived in. These are the people who will be hurt by the new government regulations are they not?

Regards, Matthew

JD - Nov 14, 2005 - 03:28 PM
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busyexpat wrote:

9....the most expensive apartment I've seen was RMB35mil....over 300sqm penthouse triplex, fully-renovated, overlooking the Huangpu River in Pudong....

Saw the same article... 1100 sqm i think it said

morrybing - May 30, 2009 - 10:37 AM
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The current property price is overpriced greatly. Its even much worse than in 2005 when this topic was discussed here.

RussianBear - May 30, 2009 - 11:38 AM
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in China, EVERY_THING is under control of the Government, include property prices. They do not allowed it going down and fined for that some developers. But, prices are already fa raway from real economical situation and are not proportional to average income.

So, here some ways:

1. Government will allowed prices down. That will be broke % of increasing of Chinese economic. Embarassed

2. They will hold prices. Market of property already frozen and some developers will stop projects and make attempts to cheap run. Crying or Very sad

3. Local pipl will be able make more money and ACCEPT current prices Shocked

phiota - June 06, 2009 - 08:52 PM
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The key thing worldwide in determining if a market is overvalued IMO is if the area salary/rental prices can support the real estate market.

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