Just a slip, or is Shanghai's property bubble really about to burst? In late June, official data revealed a 20% drop in turnover in the secondary housing market in May.
Real estate agents insist it was only a freak slide. "Quite the opposite, in fact," CB Richard Ellis' Jonathan Davis said. "People were waiting because of the revised banking regulations which now link mortgage payments to taxable income." Between 1999 and last year, the city government allowed buyers to write off their mortgage payments against income tax. A government-directed tightening of borrowing by banks has since made mortgages more difficult to get.
And that seemed to show up in figures in June. They tracked a sharp decline in transactions, from 14,897 in April and 25,438 in March down to 11,300 for May. Davis had his theories: a floating population returning from Spring Festival holidays may have driven an increase in March and April; the dip that followed was merely the tide moving back out.
Rental properties are showing some healthy signs too. Mid- and high-end apartment rents have bottomed out after a continuous two-year decline while a recovering global economy has brought a flow of overseas executives driving demand for high-end apartments.
ZBut it's the buyer's market investors have their eye on. "There's plenty of people wanting to buy," Davis said, "but many are looking for something different, something outside the average two-bedroom box."
In the absence of investment alternatives (if the stock market or bank deposit rates of less than 2% can be considered serious alternatives) investors have to stay focused on property and just hope they can swing a mortgage.
A mid-July check of the listings certainly showed prices moving up. Asking prices on second-hand downtown apartments, selling at US$2,500 per sq m 12 months ago, tend to be around US$3,000 per sq m today. Then there are the serious risers: one 6-bedroom 1930s townhouse on Yongjia Road in Luwan district, the old French concession area, cost RMB 4.2 million 12 months ago and is valued today at RMB 7 million.
Shanghai's municipal government meanwhile has been facing widespread public anger over high property prices. "There's been a slight dip in prices across the board but it's not the start of a trend," said Patrick Parsons at developers China Central Place. "The government is seeking a reduction in supply and a reduction in price. The two don't go hand in hand."
Parsons argued property prices could eventually approach London's. One young professional recently bought a flat only two subway stops from Shanghai's downtown core. She said she was tired of seeing her money go down the drain in rent payments and figured her mother could do better than watch her money shrink in a bank where interest rates trailed inflation.
So with help from her mum, she paid RMB 1.3 million for a 132 sq m flat, which she reckons nets out at a usable 109 sq m. The flat sits on the 29th floor of a 72-storey tower offering fantastic views but few amenities beyond a gym and ping pong tables.
On a whim, she posed as a seller and posted the flat – this time priced at RMB 1.42 million – on a web site to see if anyone would bite. "There were two responses in two days!" she said, hardly containing her excitement.