Now is a time like no other for buying a home in Shanghai, both for domestic and foreign buyers. Quality housing is available in greater numbers, in a wider range of locations and with higher quality facilities than ever before. Prices are more affordable than even two years ago.
The government has put huge efforts into developing a comprehensive infrastructure network in Shanghai – Yn220bn during the 1990s – and this extends to green space and cleaning up rivers and waterways (see Greening Shanghai). Per capita green space is targeted to reach 6 sq metres by 2002 and the green coverage ratio will increase from 20.3 percent in 1999 to 25 percent.
The cost of purchasing has been reduced and an individual income tax refund will remain in place until July 2003. The city's commercial banks are promoting housing loan programmes to enable more people to buy their own homes and interest rates are at an all-time low.
Many new buyers are bewildered by the choices available and have difficulty navigating the complex procedures for individual income tax refund and for a mortgage.
Fuelled by rising demand, sales prices in the domestic housing sector have been on an upward trend since late 1999. Domestic housing indices released by the China Real Estate Index System showed an upward trend for 14 consecutive months, with the exception of February and September. Assuming that China enters the World Trade Organisation in 2001, multinational companies are expected to pay more attention to Shanghai and expand operations. This may lead to higher income levels among locals and rising occupancy in .expatriate housing. These factors will in turn exert upward pressure on sales prices, which we expect to increase by 2-3 percent in the first half of 2001.
With this in mind, transactions at the medium price range, Yn2,500-4,000 per sq metre, are expected to be most active in the first half of this year. According to statistics from the Shanghai Real Estate Exchange Centre, transactions at the medium price range accounted for 63 percent of total trans-actions in the last quarter of 2000.
Due to sluggish demand in the overseas-sale sector, capital values have slipped since a peak in 1995. In some cases, overseas-sale properties have reduced prices by as much as 50 percent to remain competitive and generate sales from domestic buyers. With the potential merger of the domestic housing and overseas-sale markets, many overseas buyers have adopted a `wait-and-see' attitude.
Nevertheless, prices for overseas-sale housing showed initial signs of increases in the final quarter of 2000, suggesting the market had bottomed out and buyers were back in town. According to FPDSavills, average capital values rose by 0.1 percent, an increase due largely to a lack of new supply. Assuming that the domestic housing and overseas-sale markets merge within the next two months, we forecast capital values will increase by up to seven percent in the next six to 12 months.
Rapid infrastructure improvements in the city have helped to open up the domestic housing sector, particularly in Pudong. Metro Line 2, which connects Pudong and Puxi, started operations in July 2000. A few months later, Metro Line 3 (the Pearl Line), which connects the north and west of the downtown area, began trial operations. The prices of residential projects along Metro Lines 1 and 2 rose last year. For example, residential units adjoining the terminal stations of Metro Line 2 increased to Yn4,198-4,537 per sq metre from Yn2,324-4,268 per sq metre one year earlier.
According to the latest urban plan, the municipal government will extend the length of existing metro and railway by 33km a year in next five years, instead of 10km in the previous plan. The current plan includes a new light railway connecting Lujiazui and Pudong airport and another line connecting Yangpu and Baoshan. During the same period, Metro Line 2 will be extended to Hongqiao airport.
Improved infrastructure, in particular of metro line stations, has and will continue to have a `halo' effect on prices in the immediate vicinity. Some developers have paid attention to these areas; Rainbow City and Dongfang City located in Hongkou district can expect to see price increases when the Pearl Line extension is completed in 2003.
Rebate for homebuyers
Shanghai has come up with an innovative tax break that allows local and foreign individual purchasers of residential housing to offset the full purchase cost against their personal income tax bill. The effective deed tax is reduced from 3 percent to 0.75 percent.
Circular No.19 introduced another significant incentive policy allowing local, over-seas Chinese and foreign homebuyers to claim back individual income tax refunds up to the purchase price during the period from June 1, 1998 to May 31, 2003.
To enable more people to buy their own homes, the city's commercial banks have promoted housing loan programmes. The mortgage application procedure has been simplified and the mortgage ratio ceiling has been revamped. Banks have also adopted a series of measures to help lower-income families. The Industrial and Commercial Bank of China in Shanghai is promoting a means to allow buyers to use other property as a security deposit for 100 percent of the mortgages, in addition to mortgages for second-hand property. Public housing funds are also available.
Expatriates living in Shanghai can now borrow more than 60 percent of the purchase price and the term of the mortgage has been extended to seven years. According to ICBC Shanghai branch, expatriates are allowed mortgages if they have a guarantor and have the ability to repay the mortgage. After notarisation by the lending bank, they can borrow as much as 80 percent of the purchase price for a 30-year mortgage term.
A recovering economy, a buoyant stock market, prices that have been driven down by oversupply and preferential policies issued by the government are bringing buyers out in force. Shanghai residents have been collecting brochures, weighing up choices, comparing layouts, paying deposits, arranging mortgages and, importantly for the economy, taking cash out of savings accounts and spending on fixtures, fittings and furniture.
In the current favourable market, the answer to the question of whether to buy or not depends largely on the opportunities presented by individual projects. Generally, for those planning an extended stay in Shanghai – local residents and expatriates expecting to live in Shanghai for at least two or three years – the answer may well be `yes' as far as owner occupancy is concerned.
Buying for lease is not so clear – Shanghai offers exciting returns for those who get it right, but the risks are higher. Canny investors can pick properties that offer capital growth potential as well as those that attract tenants. Advice from reputable agents can help them achieve that.
For all, future disposal is a factor to consider carefully but as a secondary market matures, there is less to fear.
Few Shanghai residents could have failed to be impressed by efforts to improve the environment within the down-town area. The urban environment used to be very harsh with little relief from the concrete jungle and no one could be oblivious to the invasion of personal space and the press of 14m-plus bodies all apparently trying to get through the same doorway, into the same lift or along the same stretch of road. The occasional whiff of freshly cut grass now provides a welcome tonic.
To beautify the city and offer shade to pedestrians during the hot summer months, Shanghai's streets are lined with a variety of trees, including ginkgo, camphor, willow and oriental plane. More than 500,000 trees now stand along the pavements, according to the city's General Management Agency. For anyone wondering about the logic of the annual spring pruning of trees, just as they are getting green again after winter, the answer is simple if the trees were allowed to get much bigger they would blow over in the typhoons that hit Shanghai a couple of times a year.
As part of Shanghai's 10th five-year plan, the target is to raise the city's green coverage to 28 percent by 2006 compared with 21 percent at present. This is being achieved in a number of ways from the little gardens that keep popping up on street corners to the 140-hectare Central Park in Pudong.
City officials also have reason to claim initial success in cleaning up Suzhou Creek. The 53km main branch of Shanghai's smelliest waterway now looks and smells much cleaner, but there is still a long way to go before the water meets minimum quality levels and is pure enough to support aquatic life. The first phase of Suzhou Creek rehabilitation started in December 1999, is scheduled to finish at the end of 2002 and is expected to cost Yn23bn.
This article was written by Sam Crispin of FPDSavills Research in Shanghai. He can be reached at scrispin @fpdsavills-sh. com.
Lo nets on new tourist attraction
When the leadership meet in Shanghai this July to celebrate the 80th anniversary of the founding of China's Communist Party, attention will likely turn to a two square-block urban development project close to the First Meeting Hall.
Xintiandi, or `new heaven and earth,' is the most ambitious entertainment district now under construction on the Mainland. It is the brainchild of Hong Kong construction and property tycoon Vincent Lo, who made the heady calculation to utilise the century-old stone-gate, or shikumen, lane houses that frame the inner-city site.
Xintiandi's price tag is US$150m, but Lo figures it is well worth the cost and expects the area to emerge as the city's leading tourist destination, or Shanghai's answer to Hong Kong's Lan Kwai Fong.
Much of the development's architectural appearance was decided by its proximity to the First Meeting Hall – a stocky building that stands adjacent to the property. Government officials were concerned about preserving the integrity of the neighbourhood. However, Lo was not satisfied merely restoring the old; he wanted the development to reflect the modern sensibility of 21st century Shanghai.
To design Xintiandi, Lo turned to US architect Betjamin Wood, who worked on the redevelopment of Faneuil Hall, a Boston landmark. "What we are doing is not strict preservation, but modern interpretation," Wood says. "Shanghai is about the creation of a modern Chinese culture and Xintiandi aims to create an environment that is chic and fashionable, not historic."
Xintiandi is located in the city's downtown Luwan district, just south of Huaihai Road and east of Chengdu Road. The development itself actually comprises 28 separate projects spread across two blocks. Existing buildings were divided by type – from those that had to be demolished but whose original brick, tile and timber were to be recycled, to buildings that were to be entirely rehabilitated.
Work started in 1999 and phase one of the project is already in soft opening. Some top-shelf restaurants, serving international and Chinese cuisine, have already opened, along with a massive Starbucks coffee shop.
There is some debate about whether Xintiandi will be a commercial triumph. Lo is projecting the area will draw about 10m visitors a year, with as many as 70 percent coming from the Mainland. Others are less certain, pointing out that the project's expensive restaurants and shops will have to slug it out in a market saturated with similar ventures. Banks agreed to finance only US$45m of the investment costs, leaving Lo to foot more than US$l00m on his own. "Well, I put my money where my mouth is," he says.
But Lo has more important things at stake. For Xintiandi is to serve as the cornerstone for a massive US$3.5bn redevelopment scheme for the city's downtown Taipingqiao area that is being supervised by his Shui On Proper-ties. The district master plan calls for the demolition of 52 hectares of inner-city housing, to be replaced by new residential high rises, framed by parks and a lake, alongside a self-styled `corporate boulevard' of commercial office buildings. "People will see [Xintiandi] and they will know what we what are going to do," Lo says.
Lo, who first arrived in Shanghai in 1985, has now made the city the base of his Mainland operations and he has committed about half of his company's assets here. In 1996, the developer made headlines when he signed a deal to redevelop 40 hectares of old cityscape into 18,000 new apartments in the city's Hongkou district. In 1999, the Shanghai government acknowledged his contributions by naming him an ?honorary citizen.?