Shanghai Real Estate: Making A Comeback?

First quarter real estate reports for 2009 are out and Shanghai’s residential property sector seems to be on the verge of something promising but it is still too …

First quarter real estate reports for 2009 are out and Shanghai’s residential property sector seems to be on the verge of something promising but it is still too early to call it a recovery, according to Savills, a global real estate service provider. Other sectors in Shanghai are still suffering from the global economic slowdown.

Shanghai residential sector 

Demand maybe slowing down in some parts of China but Shanghai’s market, as of late, has become active and robust. To the delight of the city’s developers and real estate agents, sales of new homes grew for the third month in a row, according to Shanghai Daily.  Analysts say end users, as opposed to investors, are driving the current trends and market conditions should remain the same over the next couple of months.

Last month alone, some 1.89 million square meters of newly built houses were sold. The number represents a 25 percent jump when compared to figures from the same time in 2008. “Transaction volume of new homes has been maintaining a two-digit growth rate over the past three months, and the figure for April already surpassed the monthly average of 1.73 million square meters recorded during the overheated (market in) 2007,” Lu Qilin, from Shanghai Uwin Real Estate Information Services Co., told Shanghai Daily.

The average residential price went up by 1.3 percent – RMB13,351 or US$1,954 – while availability fell from 1.25 million square meters in March to 1.15 million square meters in April. The soaring transactions have mainly been driven by previous price decline and pent-up demand of buyers waiting for the bottom. Still, full market recovery might be a ways away as survey respondents on thought property prices will continue to fall thoughout 2009. While the figures for the last couple of months were encouraging, it is important to remember that they are just a reflection of buyers returning to the market after a long hiatus.

As for rents, Savills’ report showed that the average residential monthly rent dropped by 1.8 percent to RMB177.2 per square meter in the first quarter. Occupancy rates also dropped – by 2.5 percent – leveling off at 76.2 percent.  Depending on the type of property, rental drops varied accordingly.  For example, the average rent for an apartment fell by 2.5 percent – to RMB186 per square meter per month, while villa rents fell by only 0.7 percent to RMB164.3.  As tenants decide to get cheaper residences, the luxury apartment occupancy rate also fell by 3.7 percent while the luxury villa occupancy rate dropped by twice as much at 6.5 percent.

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The office sector

Supply in the grade A office market was at 52,000 square meters in the first quarter, according to Savills. Rents in the office sector declined by 4.8 percent and vacancy rates increased by 17.2 percent, 1.7 percent higher than figures from the previous quarter. Sluggish demand combined with abundant supply will continue to be a problem for the sector as it looks to recover from the global economic slow down.

The focus on Shanghai as China’s hottest city will likely remain.  The country’s government has vowed to turn the city into a global financial power by 2020, according to CBRE, a global real estate company.  This means lots of future investments in real estate, especially the office sector.  However, for now, the oversupply in the office sector will likely dominate its short-term outlook.

The retail sector

Rental yields in sought after malls fell by 7.1 percent during 2009’s first quarter, according to Savills.  Newly finished spaces will face a challenge as the competition between landlords to entice renters heats up.  Most retailers are shelving expansion plans and are instead renovating their existing locations in a bid to attract more eyes. One bright spot is that retailers focusing on children’s products are doing well, as recession undeterred parents continue to buy for their children.

Over the next nine months, the rental price drops in the retail market will slow and prices will stabilize, according to CBRE. The Shanghai market has become an important part of major retailers’ business strategy.  Most are willing to bet on the robust emerging consumer market in China, especially in major cities.

The Chinese government has taken measures – such as cutting interest rates and loosening lending rules, to help shore up real estate transactions, according to Shanghai Daily. Overall, the country’s property market is expected to rebound. Shanghai’s residential sector is already beginning to see sunnier days. The rest of the country hopes to follow.



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