This demand for housing as an investment vehicle has been competing with housing as a human need, leading to a scarcity of affordable housing and the potential for social unrest.
To combat this, the government has recently introduced measures to cool the housing market, including curbing loans on third home purchases; raising minimum mortgage rates; restricting pre-sales by developers; tightening down-payment requirements for second-home purchases.
The new measures are obviously working – property sales fell by 70% year-on-year in Shanghai in May and developers have delayed sales of new residences because the municipal government hasn’t announced its property policy. In the high-end residential market, only 20 luxury units costing over 50,000 RMB per square meter were sold in Shanghai during the first half of June, and 36 out of 45 luxury developments available for sale saw no sales at all during the same period.
This increased difficulty in buying and selling homes has led many to look to Shanghai’s rental market instead, with the number of rental properties increasing by up to 20% and still rising. Many landlords are trying to rent out their properties, as opposed to selling them, while potential buyers are holding off on purchases until (they believe) prices will fall, and renting houses in the meantime.
Meanwhile, the ongoing Expo has been bringing many expatriates and foreign companies into the city, looking to support the event and enter the Chinese market, pushing up occupancy in popular high-end compounds and leaving few vacancies. This increased activity in the rental market pushed May’s Shanghai House Rental Index to 1221, a rise of 5 points from April.
Unlike many other large cities in China, Shanghai has yet to release detailed guidelines on implementing national policies, leaving many to take a “wait and see” attitude. For now, uncertainty means greatly reduced sales and many are waiting to see the guidelines in more detail before making any major decisions. The CBRC (China Banking Regulatory Commission) will continue to tighten lending, especially to high-risk sectors such as the property market, making it more difficult to buy properties and pushing more people to rent.
Some analysts see the “bubble” in China’s property market bursting very soon, with prices set to fall as much as 20 percent in the next 12 to 18 months. The ratio of housing prices to disposable income in Beijing and Shanghai is 13-14 times and many see this as unsustainable in the long-term, although the leasing market should continue to remain steady.
While many multinational companies reduced expat relocation to China during the financial crisis of the past two years, the twin factors of increasing expat relocation to Shanghai and the 2010 Expo mean the high-end residential leasing market will remain hot for some time to come, with high occupancy rates and fewer vacancies than ever, especially in Jinqiao, Pudong and expat-friendly compounds in Puxi, which currently have an occupancy rate of almost 95%. This increasing demand has already pushed the high-end residential leasing market into an upturn and this will continue throughout 2010 and 2011.
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