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 ). 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.

who knows?

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

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.

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.

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.

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.

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?

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?

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 ).

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).

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!

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?

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/v ... hp?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.

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).

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?

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

frenchlover1999 wrote:

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).

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.:

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!

Entertainment value or not, it does show that prices in Shanghai do range greatly.

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

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.

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.

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.

"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.

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.

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.

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.

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.

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.

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!

Maybe I'm not wrong about the stock market. The A-shares were up 8 percent yesterday.

Tim
www.chunkichilli.com

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.