Shanghai real estate boom lures
expats By Michael
Mackey
SHANGHAI - China's commercial and
industrial capital is booming, and so is its real
estate. Despite some warnings of a property bubble, many
expatriates are joining the ranks of residential
property owners and real estate investors.
There
are several reasons why expats are joining the housing
market, but the sheer numbers - both of expats and
profits that can be made on owning a property in
Shanghai - figure prominently.
"We have 20 to 30
inquiries a week from expats, real estate agent Linda
Liu, director of operations at New Choice Mortgage
Services Limited, told Asia Times Online. "I think there
are a lot of expats buying and a lot are buying a second
property," she said. An informal survey found the same
thing: lots of expats are buying lots of property.
According to an Asia Pulse report, the price of
land in Shanghai registered a sharp rise in the past
year. Shanghai sold 151 pieces of land totaling 1,259.8
hectares last year through public bidding in 2003. The
unit price, or one-fifteenth of a hectare, averaged 1.05
million yuan (US$126,987), up 124 percent over the price
of the previous year. A piece of land in the Luwan
District sold at a unit price of 15.27 million yuan, or
9,162 yuan for every square meter, the highest in the
city. Most of the land sold through public bidding was
in the suburbs of Shanghai, such as the Songjiang and
Bashan areas. Over 80 percent was situated outside the
outer ring of Shanghai, but land in remote counties was
sold at a lower price.
Expats sniff a
bargain "Expats" is a catch-all term. It does not
mean only those sent over from foreign headquarters, but
it does include them, as well as many overseas Chinese
establishing long-term residences in Shanghai. It also
includes foreign self-employed professionals. The
increasing number of marriages between locals and
foreigners also contributes to the increasing number of
home buyers in the city.
This is all the more
significant in that it comes at a time of talk of a
property price bubble, although industry professionals
are somewhat skeptical of the bubble theory. Their view
is that money can still be made, even as the market
consolidates after a brief dip at the end of last year.
Last year was a boom year as prices roared ahead in
double digits, this year will be quieter, but profits
can still be made on buying property.
There is
talk, still somewhat muted, of some projects and
developments being overpriced, but countering this, the
pre-owned market is growing and is very likely to
overtake the first-time sales market at the end of this
year, with all the attendant consequences.
Second-hand, the term often used, does not mean old.
It usually refers to a flat bought and then resold
quickly into the market to allow a short-term and almost
certainly non-resident owner to make speculative gains.
One of the fears is that there are too many flats in
this category at the moment, and while some thought the
market could be affected by the sheer volume, the rise
of the end-user or someone who will actually live in the
flat, was seen as a stabilizing factor.
Second-hand properties
desirable "Currently we are seeing more and more
end-users entering the property market. They are buying
second-hand properties" said Bowen Wong, senior manager
of Shanghai Centaline Property Agency. "In 2004 we will
see more and more locals buying second hand. I don't
think its going to push the price up but it will support
it."
Money can again be made from these
properties, but with the market not the boomer it was
last year, the way forward in this sector is to hold the
property for several years. So owners either have to
live there themselves or rent it out, thereby joining
landlord class.
This reflects not only the
speculative nature of the Shanghai market but its
outlook in which some see a mid-cycle period of
consolidation for the years 2005 through to 2007 when it
will be quiet - with a revival starting towards the end
of the decade as the Olympic Games, and for Shanghai,
the World Expo, bandwagon starts to roll.
Here
the general view is the core of the city will be safe
from any possible downturns and will hold value better.
Geography is important and not just in terms of core and
emerging satellites. Shanghai in a wobbly way is
bisected by the Huangpu river; on the east side of the
river is Pudong and on the west Puxi. The latter is very
much the traditional core of the city, the former the
new and gleaming world of an emerging financial center.
"Good locations in Puxi such as Jing'An, Xu Jai
Hui and Luwan, the price will go up" said Linda Liu of
New Choice Mortgage Services. She spoke confidently of a
"five to 10 percent, even 15 percent, in certain
downtown areas." She was echoed by James Huang at Asia
Asset who identified areas convenient to the the planned
2010 exposition site as another potential hot spot.
Prices rising - not explosively - but
steadily Huang also said prices will rise in 2004
- "not like that of last year but its still going up,"
he said of this year's increases.
There is
disagreement about the Pudong area, which Liu said is
"more vulnerable." She said the city's eastern side,
with the exception of some rather nice but pricey
apartment blocks near the Huangpu River, lacking in
public transport and entertainment facilities. It also
has a lot of building going, with more properties coming
on stream throughout the year.
Balancing this,
Bowen Wong of Centaline was more bullish. "I think
people should look into Pudong. It's near the airport
and the government will develop Pudong, Puxi is getting
more crowded and congested." Right on both accounts but
it hits on the fault-line of buying property in Shanghai
in particular and China in general.
Yes, the
government has driven the development of Pudong, but
what if it was to change its policy overnight? Or
accelerate it? And how much longer can the Chinese
property market and the Chinese treasury run without
some sort of tax on property profits.
"Eventually there will be a capital gains tax,"
said one industry source, speaking on condition of
anonymity, and with more than a trace of sadness.
Buyers beware the power of governments
Any buyer anywhere in the world must attend to
the local and national governments' views of these
matters. While Shanghai is now less exceptional, the
problem in China is that the government's powers are
more arbitrary and less accountable - but no less
extensive.
One specific sub-market where the
actions of the local government can have
disproportionate effects is one in which expats are
significant players - the older houses market. This
refers to the properties built during the foreign
concession era and having a degree of architectural
charm and patina, at least on the outside, that many
newer properties lack. They are usually located within
the city's core that tends to retain its value.
At SPACE, an agency specialized in selling these
old properties,Scott M Barrack, company director, says:
"The market is going up quite, quite fast." He said old
houses currently selling at 21,000 yuan per square meter
could hit 30,000 yuan per square meter by year's end as
demand grows, becomes more diversified and more
confident.
"A good number" - 30-40 percent -
were "local Shanghainese buying to rent out or sell to
foreigners, a good deal of Hong Kongers and and
increasing number of Western expats," he said. "It has
opened up, it's across the board, Barrack said.
Trying to preserve the old foreign
quarters The government has frozen supply. Longer
term, the local government is in the old houses corner
as it aims to preserve the character of inner Shanghai
by not losing too much of the older residential stock.
Although by how much is open to question, as it faces
massive development pressures in the long term.
To save the distress of losing it - a small but
persistent risk - and a substantial amount of money in a
redevelopment scheme, buyers should look for a preserved
building. "The government has to go through hoops" to
demolish preserved buildings according to Barrack. Or
look for an area where there are a number of already
settled-in private owners. The simple litmus test: "If
it's painted, the chances are it's going to be kept,"
Barrack said.
More tips: Similarly, avoid areas
that offer enough scope to be developed by a private
company - one big building nearby, such as a hotel or
office complex, is likely to be a good sign, since those
structures tend to stay put. Planning bureaus run by the
local government are an unusual ally in this regard,
since they have official copies of the plans that can be
viewed by all local residents.
As for the houses
themselves, renovation is sometimes needed to get them
to the state at which they can be leased or lived in.
Everyone suggested that any work on the house should be
undertaken by independent professionals, not those
connected with mortgage arrangements. Yes it might cost
a bit more, but it's a home, as well as an investment.
Michael Mackey is a freelance writer
in Shanghai.
(Copyright 2004 Asia Times
Online Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
