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Commercial and residential property prices in Shanghai are dropping as developers and investors try to unload in a glutted market, but demand continues to fall. For more information, read the following article from PropertyWire.

A glut of completed property in Shanghai is empty as China's real estate sector suffers from lack of demand.

Even landmark buildings like the World Financial Centre, the world's second tallest tower, have not attracted the demand because of the economic global slowdown.

Both commercial and residential sectors are affected despite the Government slashing interest rates, introducing more favourable mortgage terms and trying to get the banks to lend.

Now new homes lack buyers and high rises offices can't find tenants. Developers are stalling projects and bankruptcies are feared.

"Some developers will definitely go bankrupt. It's happened before. The government will probably want bigger companies to take the [failing] companies over," said Vincent Gu, assistant general manager of property sales at K Wah Investment, a real-estate developer in Shanghai.

The good news is that a real-estate crash in China doesn't pose the same risk as the U.S. style credit crunch because Chinese banks haven't been deeply involved in sub-prime lending. Only 20 percent of outstanding loans are in real estate, either in the form of mortgages or credit to developers, according to the World Bank.

But local authorities will be hit hard, as they depend heavily on property taxes and land sales. Under the government's stimulus plan, local counties, cities, and towns are supposed to pump up spending to supplement money from Beijing.

"Over half of the revenues of local governments come from the property sector, so they were pushing really hard to build more. Eventually, you hit a wall," said Andy Xie, an independent economist in Shanghai.

Few pushed harder than Pudong, the district of Shanghai that was transformed in the 1990s from farmland into a financial hub designed to rival, if not surpass, Wall Street. Multinational firms seeking office space were aggressively courted, often at the expense of Chinese companies. Rents soared as the world flocked to China, and developers scrambled to meet demand.

Now that demand has fallen. At the World Financial Centre occupancy rate is under 40 percent. Nearby work has begun on The Shanghai Tower, due to become the world's tallest building when it is completed in 2014—if it is completed!

 

This article has been reposted from PropertyWire. View the article on PropertyWire's international real estate news website here.