Even land prices soaring 200-350% in some markets between 2004 and 2006 did little to dampen developers’ enthusiasm for building villa communities. Villas tend to be small in structure, which means construction requires less time and resources than an apartment high-rise. This quick and relatively cheap turnaround, combined with luxury-level prices, made 2000-2005 a golden age for villas in China.
The problem was, as evidenced by the astronomical rise in land prices during this period, land itself was becoming scarce. In November 2005, the National Development and Reform Commission announced that new villa and golf course development would be "restricted." Even as China’s total floor space of luxury residential jumped 58% to 50 million square meters from 2005 to 2007, according to government statistics, villas saw hardly any of this growth.
"Villas use a lot of land, and [Beijing] doesn’t necessarily see them as the best use of it. There’s a lot of sensitivity around the use of land," said Michael Klibaner, head of research in Shanghai at Jones Lang LaSalle (JLL).
Still, developers are finding ways around regulations to deliver landed housing. In some cities, builders have launched developments with a high-rise tower and several villas or semi-attached homes around it. This means they can meet the government’s plot-ratio requirements and are still charge villa-level prices.
That said, limitations on the long-term supply of villas due to land issues and strenuous approval processes for new developments, isn’t necessarily a disadvantage. Property prices will likely remain strong, even as other areas of the residential real estate industry are subject to domestic fluctuations in the middle-class market.
"The villa market has been quite stable and, if anything, is still registering slight increases because people still desire to live in good surroundings in landed property," said Anton Eilers, executive director of residential at CB Richard Ellis.
The vulnerability for villas in Beijing, Shanghai and Guangzhou, however, comes from their near-total dependence on expatriate families as their customer base. David Song, general manager of Belle Wood Villas, a compound of 109 villas in Shanghai’s Pudong district, said occupancy has remained steady at around 92-94% this year, with expatriates as his only tenants.
An imported lifesyle
Every detail of each 230-sqm Belle Wood villa is designed for expatriate consumption.
"It’s a pure American-style wooden frame villa," said Song. The home furnishings – all imported from the US – are "exactly like [tenants’] own homes." He also cites Belle Wood’s proximity to two international schools and a 24-hour English help service center as two major appeals of the development.
There’s a price to pay for such creature comforts. Rental prices in Belle Wood run from US$5,800-10,200 per month, but the tenants themselves are, almost uniformly, not the ones paying for an imported lifestyle.
"All the expatriates’ [housing costs] here are paid by their companies," said Song.
A similar situation exists elsewhere in Shanghai. One villa developer in the city politely declined to be interviewed for this article, lest the government discover his company had the highest per-month rental prices anywhere in China.
"These [expatriates] are going to make a lot of money for the company. Companies don’t mind spending a little more money on the package," said Chris Zhang, marketing director of Le Chateau, another villa development in Shanghai.
However, as the global economic crisis intensifies, companies may start minding. While Zhang said Le Chateau has not seen any ill effects reflected in demand and contract length – usually two years – in tenants, Belle Wood’s Song says he has. He recently dealt with residents who had signed housing contracts only to be sent home early by their companies in an effort to cut costs.
"Should villas outperform or underperform the rest of the market going forward? It’s a tough question because of their dependence on foreign workers," said Klibaner of JLL.
"There’s probably a fair amount of risk associated with the villa market."