PPrice for luxury housing are expected to continue their steady rate of increase in the coming months despite warnings that the market for lower priced, mass-market housing is nearing a bubble, according to property analysts.
Analysts expect that sales of luxury property, normally costing more than 10,000 yuan (US$1,207) per square metre, will exceed the amount of supply coming onto the market. This price usually buys a bare shell, with fitting out costs adding another 20 to 40 per cent to the total.
"I don't see where a bubble would be coming from for the luxury market," said Kevin Harding, director of residential property for FPDSavills. "I see the current steady upward trend line for the luxury market to continue."
Analysts differentiate the market for luxury housing from that of mass-market flats, where there are more concerns about overheating. Expenditure on family dwellings is up more than 30 per cent from a year ago, prompting worries by government leaders and economists that prices could fall back.
The high-end market is seen as more stable at present because it buoyed by the rapid increase in household affluence, coupled with an influx of investment from other provinces and regions.
At the same time, investors from outside Shanghai are said to be buying up at least 30 per cent of the luxury properties. Investors from other provinces are buying some 15 per cent of high-end housing. Another 10 per cent is being bought by people from Taiwan and Hong Kong while the remaining 5 per cent is sold to non-Chinese, chiefly Japanese, American and French nationals.
Investors buying into the market are finding attractive returns. FPDSavills calculates that yields on luxury apartments are in the region of 8 to 10 per cent. Villas attract a wider spread of 4 to 14 per cent, depending on quality and location.
Investors have taken note. The International Leader, a serviced apartment development located in Pudong, took deposits on all units by October, two months after pre-sales started. "We have noted a number of quality developments showing this type of strong demand," says Harding.
The top end of the market is segmented, and prices there do not all move in the same way. FPDSavills classify it as:
Villas in Pudong;
Apartments in Puxi, meaning Jing'an, Xuhui and Luwan;
Apartments and villas in Hongqiao
The suburban areas of Songjiang, Qingpu and Minghang.
Of the four, the villas in Hongqiao command the strongest demand. They have long been popular with expats due to their proximity to Hongqiao airport, international schools, quality shopping and green spaces, as well as having easy access both to nearby office buildings and the central business districts. "Villas in Hongqiao always sell well, and the supply sometimes runs out," says Luo Shengde, agent at Shenzhou Real Estate.
Shifting international flights from Hongqiao to Pudong means that the villas of Pudong are being better received, according to Zhang Yiguang of Kingswick Property Consultants. FPDSavills says Pudong now contains 40 per cent of Shanghai's luxury properties, compared with just 8 per cent in 1994.
But Harding cautioned that it would be some time before Pudong became a strong attraction for some families. "There are some excellent developments there, but it still lacks the social infrastructure you see in Puxi.
Harding saw both Pudong and the suburban areas of Shanghai benefiting from the rapid improvement in transport infrastructure, including a new bridge and tunnels across the Huangpu River. "Crossing the river is a key consideration, and that will become easier through 2003," he said. "In future, people will not consider the river any sort of demarcation line, which, in some people's minds, it still is."
Until recently, the outer suburbs of Puxi such as Songjiang and Minghang were seen as remote and not attractive to high-end buyers. But better transport links and a spate of higher-quality developments is now seen to be pulling the foreign community out of the inner-ring road region and into the outer suburbs, where green space is a major attraction.
"The commute times to these outer areas is coming down," says Harding, citing the example of the new Hampton Woods development in Songjiang. "It takes about 30 to 45 minutes to go downtown, which most commuters can live with, and it is around 20 minutes to numerous country parks, golf courses and other green space attractions. Basically these types of developments are offering a style of living not previously available in Shanghai."
(Shanghai Star November 22, 2002)