The Rise and Fall of Shanghai Real Estate

After reaching a peak in 1994, real estate prices (for foreigners) in Shanghai have dropped on average by 25-30 percent over the past couple of years. With the supply of "Grade A" offices and "luxury" flats/villas tripled, occupancy rates in all but a few choice buildings have fallen to less than 40 percent. To stem further decline, the government has imposed a three-year moratorium on new high-end real estate projects from 1995-98. Bearing the brunt of the crash (without occupancy rates as low as 20 percent), Pudong has resorted to a number of special incentives to encourage foreign as well as domestic investment in the new area. Meanwhile, many developers appear to be deliberately slowing down ongoing construction in a bid to cushion falling property prices. This downturn in the property market is good news for most investors who have been paying an arm and a leg for local real estate. It appears that the astronomical prices demanded have had an effect on the nature and level of foreign investment coming to Shanghai. Many investors, especially smaller ones, are opting to move to other cities with relatively more reasonable costs. We expect that property prices will continue to slide for at least a couple of more years before bottoming out Even if prices were to bottom out, they are unlikely to rebound before well into the next century.

American Consulate Shanghai (PRC), 10/17/97

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Shanghai Has Just Become Affordable

In the last couple of years, Shanghai has become a changed city. Traffic is less congested and rents have taken a nosedive. According to First Pacific Davies, Shanghai rents have come down to the level of Paris or New York and will be even lower before they stop. Shanghai is at last "a buy" as brokers like to say. It is too bad that most people who came in did so two or three years ago. The monthly rentals in the best buildings have come down significantly from $50-$90 per sq meter to around $30-$40. Grade A office rentals have decreased about 30 percent in just over a year but at the same time the quality of the buildings and the service has improved dramatically. Around 1.6 million square meters of new office space will be available this year which will mean further downward pressure on prices. The main point of all this is that any foreign company making an investment in Shanghai can expect to provide adequate housing for their expat with a secretary and cover the costs with about $2,000 a month.

EIU Business China (U.K.), 03/17/97

http://cbw.com/business/quarter1/construc.htm

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Invest in Shanghai 2nd half 2006 and 2007...the Olympics are not till August 2008.

Invest in Zhuhai/Zhongshan now, so you can ride this wave up, before transferring back to Shanghai to ride that wave back up.

Could you elaborate on why investing in Shanghai 2nd half 2006? What's the effect on the market with EXPO 2010?

Why Zhuhai/Zhongshan now? Because of CEPA?

hi victorian,

CEPA, yes, but there are more reasons...closely linked of course. The place is cheap. Cheaper than other neighbouring cities. There is an approved 29km bridge from Hong Kong coming, there is railway coming and the place just feels nice, it's a seaside city with green hills.

I recommended Zhongshan as well, because some investors appear to prefer it over Zhuhai, due to the Zhuhai government's fairly recent default on around 1bil USD of foreign debt.

2nd half of 2006 will see full WTO compliance, which will mean a further release on restrictions of foreign enterprises (at least supposedly). Therefore, I take the view that demand will rise from that point onward...but no time before.