Shanghai residential property market will round out the year on a roll, after rebounding from a long stretch of soft sales.
Both developers and realtors, or at least the majority of them, have taken heart from the turnaround, which manifested itself in the second quarter and shows no signs of running out of puff. They can thank government policies for the run of good fortune.
In November, which is usually not a big month for property sales, new and existing housing markets in Shanghai showed strong transaction volumes, second only to their historic highs.
Citywide, 1.495 million square meters of new homes, excluding government-subsidized affordable housing, were sold last month, a slip of only 1 percent from October’s record and a year-on-year increase of 43.8 percent, Shanghai Homelink Real Estate Agency Co said in an earlier report. The average price stood at 34,730 yuan (US$5,351) per square meter, a month-over-month rise of 4.4 percent and a year-on-year surge of 25.4 percent.
In the existing home market, meanwhile, 37,400 units changed hands, rising 17.5 percent from a month earlier and 91 percent from a year earlier, according to a separate report by Shanghai Centaline Property Consultants Ltd. The average home price was 25,402 yuan per square meter, a rise of 2.5 percent from October and an increase of 15.9 percent from same period a year ago.
“The first 20 days of December continued to extend the strength at an even faster pace, with nearly 1.09 million square meters of new homes sold across the city, an increase of 20 percent from same period a month ago,” said Lu Wenxi, a senior manager of research at Shanghai Centaline.
“We expect that momentum to remain through the end of the year,” he said, “which would make December the best-performing month in 2015 in terms of new home transactions.”
While demand from buyers remains robust, a declining backlog of new homes is definitely brightening the prospects of developers and realtors.
As of November, there were about 11.5 million square meters of new residential properties available for sale in Shanghai, the lowest level since the second half of 2014 and a drop of 11 percent from the beginning of this year, according to Shanghai Homelink. That level of housing stock would be taken up in 10 months if there were no new supply and the current pace of sales prevailed, the company said.
The housing rebound can trace its origins back to March, when the People’s Bank of China, in conjunction with the Ministry of Housing and Urban-Rural Development and the China Banking Regulatory Commission, announced an easing of mortgage restrictions on second-home buyers. Their minimum down payment ratio was cut to 40 percent from between 60-70 percent. Moreover, home sellers became eligible for a waiver of the business tax if the property they were selling was owned for two years or more. In the past, they had to hold a property for at least fives years to qualify for the waiver.
“A series of loosening measures and the central bank’s five cuts in both interest rates and banks’ reserve requirement ratios this year have fueled home buying demand across all segments of the market,” said Lu Qilin, director of research at Shanghai Homelink. “With only one week left in the year, developers and realtors are all geared up for a final dash toward a very fruitful 2015.”
China’s central bank announced in late October a cut in benchmark interest rates by 25 basis points and a paring of the reserve requirement ratio by 50 basis points in its latest bid to counter the nation’s economic slowdown. Those actions took the one-year benchmark deposit rate to 1.5 percent and the lending rate to 4.35 percent.
In the existing home market in Shanghai, 641 units costing a minimum 8 million yuan each were sold in November, the highest volume in that segment recorded so far this year. In the first 11 months, 4,996 such units were sold across the city, more than double the entire number registered in 2014, according to Homelink.
It’s a similar story in the new home market. Tomson Riviera in Lujiazui of Pudong New Area, a benchmark project in the luxury segment, had one unit that sold last month for 161 million yuan, or 269,200 yuan per square meter. It was the most expensive apartment ever sold in Shanghai in terms of average price.
The burst of activity in the home market has had a knock-on effect on sales of land for development.
In late November, Cinda Real Estate Co acquired a residential plot in New Jiangwan Town in northeastern Yangpu District, for close to 7.3 billion yuan, or a premium of 82 percent to the reserve price, after beating more than 10 rival bidders. The average cost of the parcel, at 49,150 yuan per square meter, was higher than the mean price of homes sold in New Jiangwan.
Two weeks after that, Radiance Property Holdings Ltd surprised the local land market by beating off some 20 rivals in an auction for a residential parcel near Xinzhuang metro station in southern Minhang District. The developer secured the land at an average cost of about 47,000 yuan per square meter.
Where is this all heading? To a very rosy 2016, according to industry insiders.
David Ji, head of research and consultancy for Knight Frank’s China operation, said he is optimistic about China’s property market, particularly in first-tier cities. He said he expects residential prices in Shanghai, Beijing, Guangzhou and Shenzhen to increase 5-8 percent next year.
