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Shanghai 04 - An Article on Shanghai by the Economist.
News on Shanghai Real Estate:
Shanghai's real estate prices fall significantly with close to 50%
drop in some areas -claim
Shanghai. June 16, 2005. INTERFAX-CHINA -Property prices have dropped in
Shanghai, the most active property market in China, as government measures
such as raising taxes and restrictions on sales begin to be felt.
Statistics compiled by an official website show that last week (May 31-June
6) prices for Shanghai residential properties were down an average 18.5% to
RMB 6228 (USD 752.17) a square meter from the previous week..
The statistics are compiled by eHomeday (www.ehomeday.com), the official
website registering Shanghai's property market transactions. The biggest
fall in residential sales was in Pudong New Area, which registered an
average decline of 49.3% in the week. Meanwhile, the number of transactions
have increased to 1.3% with 2516 properties changing hands in the week, with
low-and-mid-end properties enjoying increasing popularity.
"The downtown area has seen a fall in prices, while the prices of properties
in outskirts have increased recently," Ms. Huang, an official with eHomeday,
Image: Night Scene in Shanghai's Pudong New Area
Shanghai's combined index for housing prices rose by 1.1% percent to 1,513
points in May. Sales of used homes rose in mid and late May, as both buyers
and sellers hurried to make deals before June 1, the deadline for new
government policies to come into effect. Measures were announced last month
by seven key ministries and government authorities including the People's
Bank of China and Ministry of Construction to cool off the real estate
market. According to the measures, property owners who sell within two years
of purchase will have to pay tax on the full sale price. The measures were
mostly to prevent speculators investing in property, which artificially
raised the overall market price, especially causing difficulties for mid to
low income families.
Several real estate agents and research centers, including eHomeday,
Centaline (China) Property Research Center and the Shanghai Index for
Housing prices Office, however, declined to speculate on the future
prospects of the Shanghai property market, saying it is a too sensitive a
topic to talk about at the moment.
Shanghai Real Estate Analysis
"I believe the property prices will remain fluctuating within a narrow band,
and no dramatic drop will occur, at least not this year," a property
analyst, who wished to remain anonymous, told Interfax.
The real-estate market, especially in Shanghai, is a very sensitive area
currently. Both local media and officials are following government
guidelines in not causing 'market disorder.' This means they cannot offer
official comment other than that specified by the government. Shanghai is
especially sensitive as a property bubble has built up, following rampant
speculation in housing. The government hopes to cool the market following
its recent measures, though many market observers are not convinced the
measures will work. Property prices in Shanghai have risen by more than 200%
over the recent 2 year period. The speculation is compounded by the
long-term slump in the stock market.
China puts brake on Shanghai's real estate boom
06/25/2005 (Asahi Shimbun)
SHANGHAI-Property values were soaring and the real estate market here was
booming-until this spring, when the Chinese government started to fear a
Worried that the runaway market could lead to an asset-inflated bubble
economy, the government began to introduce measures to curb the rise in real
One of the dampening measures includes the imposition of taxes on profit
from the quick resale of real estate.
Those hardest hit by the new rules are mostly middle-class investors who
rushed to buy condominiums at the peak of the boom.
A 26-year-old woman who works at a foreign firm in the city
says she is so worried about the market situation she cannot concentrate on
her job. She doesn't know if she can resell her condo or if she will be
plunged into serious debt.
The woman, who gave her name only as Zhu, receives several e-mail messages
daily from a real estate agent. Mostly, it's bad news, such as: The market
price for condominiums fell by 20 percent in one month.
In March, Zhu bought a unit in a multistory condo under construction in a
residential area about a 30 minute-drive from the city center. The
135-square-meter unit was priced at 1.31 million yuan (about 17 million
She put down an 860,000-yuan deposit. To make the payment, she used 150,000
yuan from her savings and borrowed 710,000 yuan from a bank on a 30-year
loan. Zhu said the bank gave her the loan after only briefly researching her
Zhu earns 7,000 yuan monthly, which is relatively high in China for people
of her generation. Of the 7,000 yuan, however, 5,400 yuan goes to repay the
loan, she said.
Zhu now refrains from going out or dining with friends. She doesn't buy
cosmetics, clothes or cigarettes.
This is Zhu's second go-around in the real estate market; the first time was
much more profitable.
In October 2003, right after landing her job, she purchased a
38-square-meter condo for 240,000 yuan, planning to live in it. In December
2004, she resold it for 350,000 yuan. The profit lured her back into the
real estate market.
Zhu said she did not intend to live in the new 135-square-meter condo when
she bought it. Her plan was to resell the condo once it was built, pay off
the loan and earn a hefty profit.
Now, Zhu is worried about whether she will break even.
Not only entrepreneurs, but also many individuals like Zhu, have embarked in
real estate investment in Shanghai.
Some investors buy entire buildings and resell them shortly after.
The total market for real estate in Shanghai in 2004 reached 226.3 billion
yuan, up 60 percent from the previous year.
According to the Shanghai city government, the average housing price
increased by 15.8 percent in one year. In the central part of the city, the
rise was a spectacular 27 percent.
This spring, however, the central government, which had been encouraging
real estate investment, began to take action to curb property speculation,
not just in Shanghai, but also in other major cities.
The government clearly wanted to avoid a collapse of the real-estate bubble,
with investors unable to pay bank debts, leaving banks with huge amounts of
In a government report released in March, Chinese Premier Wen Jiabao said:
"Both an overheated or cooled-down economy is disadvantageous. The
government will put the brakes on the rise in real estate prices."
Shanghai is also following the central government's move.
In March, the city government began to impose a 5-percent tax on profits
when investors resell real estate within a year after purchase.
In April, the city government prohibited its citizens from taking out a
second loan before repaying the first one.
Meanwhile, the People's Bank of China raised housing loan interest rates in
March. The lowest interest rate for loans of five or more years was raised
0.2 percentage point to 5.51 percent.
The bank also set the minimum down payment for real estate at 30 percent, up
from 20 percent.
On June 1, the central government introduced a 5-percent tax on profits for
investors nationwide who resell real estate within two years of purchase.
With all those dampers, a wait-and-see mood in the real estate market has
According to ehomeday.com, the largest housing information Web site in
Shanghai, the price per square meter for a new condominium in a city suburb
declined from 17,000 yuan in March to 14,000 yuan in April and to less than
13,000 yuan in May.
The price for a condo in the Pudong district, which is known for its
high-rise buildings, dropped 17 percent in the two-month period.
The market price for conventional condos in the city is on a downward trend
with huge fluctuations. The average square-meter price for a condo dropped
sharply from 10,000 yuan in April to 5,500 yuan on May 24. That was the
lowest recorded this year.
However, some experts said a drastic decline in real estate prices is
unlikely to continue.
Zhu Zhendong, an adviser to Shanghai Yijie, a real estate firm with wealthy
clients, said: "The central government introduced the measures to prevent
those without enough funds from embarking in real estate speculation.
Wealthy people are not affected by them."
Most of the firm's clients, who are investors based in Taiwan and Hong Kong,
are optimistic, expecting a rise in their property values by a possible
higher appreciation of the Chinese yuan against the U.S. dollar.
Xiao Minjie, a senior researcher at the Shanghai office of Tokyo-based Daiwa
Institute of Research Ltd., said, "The real estate investment boom will come
back again after a three-month wait-and-see period."
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