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The great leap forward
Elevated view of Shanghai’s skyline.Shanghai’s property market continues to amaze with skyrocketing prices and an insatiable demand for new luxury homes, with no slowdown in sight.By Romesh Navaratnarajah With a population of 1.3 billion and a land area spanning over 9.5 million sq km, China can be a daunting market for foreign investors looking to cash in on the country’s rapid economic growth, which, at 6.9 percent, has outperformed all the other major economies except India.
Tough Internet restrictions on websites such as Facebook and Google have earned it the nickname “Great Firewall of China”, while lots of red tape and cultural differences make it a difficult place for foreigners to do business.
Despite these barriers, a number of Singapore developers have been aggressively building and selling properties there for years, tapping on hurried urbanisation and growing wealth in China’s largest cities.
Big name players such as CapitaLand, City Developments Limited and Keppel Land continue to build hundreds of residential and commercial developments in the country’s tier-one and tier-two cities. Core market China is currently CapitaLand’s largest market outside of Singapore, accounting for over 40 percent of the group’s total assets. In 2015, the developer sold a record 9,402 homes in China with a sales value of RMB15.4 billion (S$3.4 billion).
At a financial results briefing earlier this year, Lim Ming Yan, President and Group CEO of CapitaLand, said: “We expect residential sales in the market to continue to perform steadily this year.”
Analysts are also upbeat on China’s property market, especially the luxury residential sector and office and retail markets in the first-tier cities of Beijing and Shanghai.
In 2015, property consultancy CBRE recorded US$13.8 billion in commercial property transactions in China, which corresponds to about 14 percent of the total transaction value in the Asia Pacific region.
Most of the deals involved offices and logistics space in tier-one cities. But given the slower single-digit rental growth and tight yield levels, it is becoming harder to source for investment assets that can hit their required returns, said Ada Choi, Senior Director for CBRE Research Asia.
Still, there are exceptions like Pudong, the central business district of Shanghai, which recorded office rental growth of 10 percent last year, along with rapid capital value growth, Choi said. Sales spike David Ji, Knight Frank’s Head of Research & Consultancy for Greater China, noted that since the middle of last year, there has been an increase in foreign commercial investments in Beijing and Shanghai. He added that there has also been steady demand among foreigners for new condo units in prime areas.
“In Shanghai, new luxury home sales were up 288 percent year-on-year in Q1 2016,” Ji told PropertyGuru.
He believes there are several factors driving sales, including strong economic activity, intense housing demand and higher supply. “China is a developing country with huge growth potential in multiple industries, including manufacturing, natural resources and technology.”
This has helped to drive up property prices, especially in Shanghai, with prices of new homes in China’s second priciest city jumping 20.7 percent in May from a year ago, revealed data from research firm China Real Estate Index System.
Ji shared that property seekers are looking to buy homes in upmarket precincts such as the car-free shopping district of Xintiandi, the upscale suburb of Gubei (home to a large number of Japanese and Korean expatriates), and Pudong.
Fending off a bubble To prevent a housing bubble, Chinese authorities introduced new property cooling measures in Shanghai in March this year, which included larger downpayments for second homes. Moreover, non-local residents can only buy homes if their income tax and social security documents show that they have lived in Shanghai for more than five consecutive years.
It remains to be seen if these restrictions will have any impact on wealthy foreign investors who do not necessarily need to take loans from local banks to buy an investment property. “Most of the purchases are cash deals,” noted Ji.
While the sales market is showing signs of overheating, rentals have been more stable, with luxury residential yields averaging between two and three percent in Shanghai, said Ji.
One thing you should note, though, is that all the land in China is owned by the government, which leases it out to developers for up to 70 years, making it difficult to sell a property or pass it on to the next generation if the lease on the land is expiring.
CITY FAST FACTS (SHANGHAI)Population: Approx. 24 million Total area: 610 sq km Currency: Renminbi (RMB) GDP per capita: US$16,553 GDP growth: 6.7 percent y-o-y in Q1 2016 Future transport: Further expansion of Shanghai’s metro network by 2025 Average home prices: US$577 psf Distance from Singapore: 3,800 km
INTERNATIONAL HIGHLIGHTThe Paragon in Shanghai has just launched five deluxe duplex units that are likely to tempt foreign investors.NEW PROJECT
The ParagonShanghai, Huangpu DistrictType: Apartment Developer: CapitaLand Tenure: 70-year leasehold Facilities: Clubhouse, car park, 24-hour reception Nearby Key Amenities: Xintiandi, Huaihai Road, West Nanjing Road Nearest Transport: South Shanxi Road metro station Starting Price (for the duplex units): RMB65 million (Approx. S$13.6 million)
The Paragon is a luxurious residential landmark located in Shanghai’s exclusive French concession district. It comprises six 11- to 26-storey tower blocks housing about 300 premium apartment units.
Developed by CapitaLand, the sprawling estate features an English-style garden with a large clubhouse spanning 3,500 sq m that is equipped with state-of-the-art recreational facilities such as a temperature-controlled indoor swimming pool, a gym and a squash court.
Sited along South Maoming Road, The Paragon is within walking distance to Xintiandi and Shanghai’s main shopping belts of Huaihai Road and West Nanjing Road.
The Paragon has recently launched five deluxe duplex units ranging from 310 to 588 sq m in size. Featuring luxurious interior design and furnished with exquisite marble and premium artwork, these five duplex units also come with smart home technology.
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