Shanghai property prices set to keep rising, latest analysis suggests

Luxury properties in sought after areas of Shanghai remain in demand despite the introduction of new taxes and other cooling measures, the latest report on the Chinese city’s residential market shows.

According to the report from Knight Frank the average transaction price will continue to grow, boosted by the launch of new projects, but there is some evidence of buyers slowing down as new home sales fell slightly.
The report also says that in the leasing market, influenced by the development of China (Shanghai) Pilot Free Trade Zone, more multinational corporations will be set up in Shanghai and the increase of new expat arrivals will bring about more leasing demand, which will certainly push up the average rent and occupancy rate.
In addition, due to the positive impact of China (Shanghai) Pilot Free Trade Zone and the lack of residential properties within the Zone, surrounding residential projects will face a new round of growth in sales price.

The report shows that the land market remained buoyant in the third quarter of 2013, with 32 residential plots transacted, 15 plots or 88% more than the previous quarter. The active land market is correlated to the positive prospect of developers. ‘Due to the enthusiasm of developers in acquiring land, over half of the transacted land achieved premium rates of over 100%,’ it says.

In the third quarter, luxury home supply surged to 320,000 square meter, up 14.3% quarter on quarter, of which nearly 210,000 square meters was located in downtown, equivalent to the total new downtown supply in the first half of 2013.
But there are signs that some investors and wealthy buyers may be reaching their limit in terms of prices. There were some signs of purchasers’ enthusiasm cooling down as new home sales amounted to 138,000 square meter, down 6.7% quarter on quarter.

Sales of residential properties priced over RMB100,000 per square meter decreased 27% quarter on quarter. Such sales had fallen in July and August but in September, new home sales rebounded quickly to hit their highest level so far in 2013.

The luxury rental market is being influenced by the economic recession in Europe and the United States, the report says. Arrivals of managerial level expats to Shanghai decreased significantly in the third quarter. Leasing demand weakened whilst the occupancy rate fell to 94.1% with a quarter on quarter decrease of 1.8%.

In the third quarter, the occupancy rate of luxury villas in Pudong reached 95.4%, down 1.3% compared with the previous quarter. In addition, due to restricted tenant budget, some luxury serviced apartments faced high vacancy rates, one of the reasons for the increased vacancy rate in the third quarter.
Owing to limited budget and higher living costs in Shanghai, most expats chose to renew leases in the third quarter, though most landlords raised rents slightly. The average rent in the third quarter reached RMB180.1 per square meter per month, an increase of 1.7% quarter on quarter.

During the peak season for international school registration, luxury villa leasing remained active with a 5.4% increase in the average rent in the third quarter.

In the third quarter, the average transaction price fell to RMB56,609 per square meter, a quarter on quarter decrease of 1%.

‘With the slowdown of sales in the riverside area of Lujiazui, the sales of new residential properties priced over RMB100,000 per square meter decreased 27% quarter on quarter, dragging down the average luxury residential price,’ the report says.

‘However, as new home sales picked up in September, buoyed by strong purchasing demand, market prices are expected to maintain on a positive growth trend in the coming 12 months,’ it concludes.