Archive for Market News

Tomson Riviera occupancy at 20%, called a success…

The infamous Tomson (thomson) Riviera has begun renting it’s “not selling” units in october 2008.
By November it had already rented 8 Units and the count stays at 12 as of today.

This translate in a little below the 20% occupancy mark, which the developer has called a success.

Well, given the current turmoil, renting 8 units of 70 thousand renminbi and upwards is probably not bad, but I do not think you can call 20 percent a success either.

Tomson has been plagued with sluggish (none) sales, and decided to begin renting in 2008.
The 430 to 670 square meter units are selling for an average of 130′000 RMB per square meter.

Being in the business for a while, I know that there are quite a few buyers around that purchase properties at these and even much higher prices (for example in the french concession).

Among industry insiders, the general consus is; that the problem is/was the marketing of the property.
By being awefully strict, and making it very difficult for people to see or get info about the units in the tomson riviera the developer had managed to alienate many potential buyers.

A huge number of the “rich” in china are not comfortable to share their income statement (if they even have one), and they don’t want to be bothered to fill out a form, add a bank statement and all kinds of things to see a place.
They’re simple people, I’ve seen it more than once, that somebody rides a motorcycle in the simplest clothing possible in front of an agency and ends up buying a 20 Million Rmb old house the same day.

I guess they had the right idea, make it exclusive, and don’t let everyone in. But it was executed poorly.
And now this beautiful (truly amazing) property is just sitting there, in the middle of shanghai’s financial district, watching as the lakeville regency and french concession houses are being picked up at the same or even higher prices.

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China’s Industrial output grew 5. 7%

According to official statistics the country’s industrial output grew 5.7% in december or 0.3 percentage points faster than the month before.

Light industry is outgrowing heavy industry in these harsh times.

In December 2008, China’s light industry enjoyed an output growth of 8.1 percent year-on-year, which sharply outpaced the 4.7 percent growth of heavy industry.

I think the next line is very intriguing;

In December, state-owned and state-controlled enterprises witnessed an output drop of 0.6 percent, while that of private enterprises went up 16.3 percent, overseas-funded enterprises was up 0.3 percent.

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Shanghai High End Sales Volume increased 75% in November

What we’ve already noticed here in our last post, is now confirmed by official government statistics.
Sales Volume for high end apartments’ has basically exploded again in November, officially increasing by more than  75% from october.
(which is interesting as september and october traditionally mark the strongest months in shanghai real estate sales before it totally dries up, agents call it the golden september and silver october).

In addition to the 2nd hand sales of high end apartments, some developers also dropped prices dramatically.

In three of the most highest priced items on the market the final sales price was down about 30000 Rmb from the original asking prices.

Examples were the brand new Orchid Apartments on Maoming Road, where the last 7 Apartments sold in November for an average of about 56930 Rmb per square meter. That’s a lot lower from the offical asking prices between 75000 and 100,000 Rmb per square meter.

The famous Casa Lakeville also got hit. The sales numbers for the latest phase are also around 55000 Rmb a square meter. 
During the first sales round, 118 Apartments sold for an average of 84100 Rmb in June.

The Shimao Five, earlier also asking more than 85000 Rmb per square meter averaged 56213 Rmb per square meter last month.

Yes, prices are way down in Shanghai’s luxury real estate market, but finally, with sales volume increasing like crazy these days, at these prices, we might have found a bottom now.

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City to offer “citizenships” to property buyers?

An interesting article was published on the Shanghai Focus Website on Friday.
It is suggesting the the local government is considering reviving the ‘97/98 policy of offering Shanghainese “Citizenships” to affluent property buyers in the City.

The policie’s goal is to attract buyers from other provinces to the city, bringing both, capital and talent to Shanghai.

If there will be action and a similar policy put into place it is not yet clear what regulations there will be for the properties and individuals qualifying.
Quite possible that there will be capital limitations and requirements of a certain educational background.

The policy did actually work, and housing trippled within four years after the economic collapse of asian markets in 1997.
In 1997 the total residential area sold was 6.9 Million square meters, in 98 the total was up to nearly 12 Million square meters and in 2001 it already hit 17.8 Million square meters.

A popular chinese finance portal conducted a survey of recent buyers and found that about 46% said their number one incentive to buy Shanghai Real estate was to obtain the “citizenship, or grean card” the city was offering.

The article itself and many comments on the site are very optimistic how something like this could actually work to curb the transaction volume which has been close to nothing recently.

Funny, amidst the current financial crisis, and failed attempts to rescue the credit markets you would think that a few people could say that artificially keeping prices inflated in a downturn may only make matters worse in the future.

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Shanghai Real Estate Sales Volume to pick up again 1st Quarter of ‘09?

According to analyst China’s Property market is supposed to pick up again as soon as the beginning of 2009.

21st Century China Real Estate Brokerage that it’s gotten more leads in the last week than in the months before.

All of which were in outer ring road districts.

 

Average sales volume has picked up to above 400 per day this week, roughly double and four times the amount from the previous months were slumping sales numbers have forced hundreds of realty companies to close down.

However, of all these closings only about 50 on average were in downtown districts (xuhui, changning, luwan, jing an, huang pu, downtown pudong, hong kou) that accounts for only 15% of total sales.

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Shanghai Government steps in to “rescue” the Market

The Chinese Government announced several changes to current real estate rules today in an effort to “rescue” the slumping Real Estate market.

There are 5 significant Changes to the current system.

  1. The Current minimum downpayment requirement will drop to 20% from 30%
    (during the go-go times the government issued the first  downpayment rules, before it was 0-down)
  2. The commercial Tax Rule was lowered to 2 years from 5 years. (If an investor sold the property within 5 years, he or she had to pay a hefty tax of 5.55% of the whole sum).
  3. The Value added land Tax which used to be 5% of the profit has been suspended.
  4. The Deed Tax which was 3% for the whole country and 1.5% for Beijing and Shanghai has been lowered to 1% nationwide.
  5. The Public Labour Salary Loan’s maximum sum has been increased to 600′000 Rmb from 200′000 Rmb.
    This thing, is very hard to explain, but I think you can sort of compare it to the US’s 401k plan. 

    (If you’re chinese, and you work in your hometown, or get paid in your home town, your company has to pay “public labour money” Gong Ji Jin in addition to your salary, you can take that money out, as long as you have a work contract and have the monthly “public labour money” pay back that cash.
    The Interest Rates are about half of normal loans, thus making them very attractive.) 
    The chinese writing on the Boat in the image below means “Public Labour Money” 


These are some very drastic measures all at once, alltogether there are 14 changes (the stamp-ink tax which was 0.05% was also suspended) which were announced today.
But to be fair, all these taxes where already a very harsh way to curb the market in the first place. 

Think of it, 20% of your profit, 7.6% of the whole, in addition to several fees at the transaction office, 1% broker commission etc.

It’s a tidy sum of money, and one must be amazed how long people still managed to be bullish on property despite all these restrictions and fees.

What do you think? Will the new rules impact the real estate market in a positive way? Or not have an affect at all? 

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Prices are coming down, not only sales, rentals too!

Shanghai Real Estate prices are coming down.
As the financial markets continue their downward spiral worldwide it seems like Shanghai’s Real Estate Markets are following.

As China’s latest GDP growth report indicated the country is too large to be immune from economic events worldwide.
Although Retail Sales have picked up, GDP growth has slowed to 9% for the quarter.

I have already warned that there will be more and more desperate sellers popping up in Shanghai too that will want to liquidate their property assets into vital cash. 
That was a foreseeable event as the city will also get it’s share of export related property sales.

But there is another interesting trend that wasn’t so obvious, a large number of new rental listings have popped up around the Shanghai in recent months.
Some large Agencies like Centaline are even demanding new listers to drop prices by 10% or they want take the listing as supply is starting to outweigh demand.

Why is this happening?

I believe it is related to the chinese investors mind. If they can avoid it, chinese will never sell on a loss, I’ve seen this with many people around me.
Even as stocks fell sharply, day after day and there was no end in sight for the coming months most people that could afford it refused to sell their shares at a loss.
“I’ll just hold on until they recover. I don’t need the cash right now. You can’tsell on a loss.”
These are just some examples of the explanations people have given me.

It seems like that the real estate market is no exception in the rule.

There are still plenty of investors out there that have lot’s of cash and are not in the immediate need of selling.
But because the common opinion out here is that the market isn’t going to recover within the next two years, landlords are looking to rent their properties out now.

Most landlords here don’t like to rent their Real Estate, many feel like tenants will decrease the value of the apartment over time by wearing it down, damaging it, etc.
Because prices are high, and the general return on investment by rental was ridiculously low that actually made some sense as just a little appreciation in the property was enough to offset the loss in rental by multiple times.

Now prices are coming down, and even these super cash rich (large ego) individuals are starting to think that a little extra income on the side will be nice because of the growing uncertainty, especially in a market like this.
Sure many of them are also opportunists, and because cash is king the accumulated rental will be helpful in taking advantage of oversold, cheap assets.

Up until now, most of these new listings are in the low to medium rental segment. (4000 to 12000 Renminbi).

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Merrill Lynch to invest 2.65$ Billion in Asian Real Estate

Seems that even in this turmoil there still are some good news out there for the Chinese Real Estate Market.

Merrill Lynch announced that it recently raised 2.65 Billion US Dollars to invest in asian Real Estate.
Attractive to the funds will be mainly commercial properties in Japan, China, India and South Korea.
The Company also said it is considering investements in south-east asia and australia if the price is interesting.

Tim Grady who is the managing director of the firms commercial real estate investment arm in Asia said:
“We see exceptional opportunities in Asian real estate over the medium and longer term,” 

JP Morgan and Citigroup also announced funds of 1.3 Billion and 1 Billion US Dollars it plans to invest in Chinese and Indian Real Estate.

Though this is mainly a good event developers in China shouldn’t cheer to early.
Because of the low sales volume the Merrill Lynch and it’s competitors know that chinese real estate developers are starving for cash and financing and are therefore willing to give deep discounts to get rid of inventory.

If volume continues to fall in the coming weeks there will be quite a few large properties that an investor with sufficient cash can pick up for cheap.
They are also likely to hold out for a bit for the best deals.
Probably most of these attractive properties won’t pop out in Shanghai, since I only see some distressed sellers in the outer districts of developements with low margins, hardly anything that would fit in the portfolio of the investement banks that have until now mostly invested in up-scale luxury residential properties and downtown office towers.
Personally I’m  looking forward to see what kind of deals will come out of it.

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Buyers still keen on New Developements

A quick post with some interesting numbers about the Shanghai Real Estate Autumn Fair in the Intl. Exhibition Center on Yan An Road.

There were about 50′000 Visitors, or about 25% than last autumns fair, 15% more boots.
Agents had a hard time trying to sell 2nd hand homes on the fair, but new developements did quite well, a total of 871 New Apartments were reserved.
Roughly half of them are downtown units.

Though 870 properties sounds like a lot it’s still a slight downturn from last year because nearly no 2nd hand houses got sold this time.

Seems like that the 25% more visitors were just here to look.

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Latest noteworthy Transactions

Well, there hasn’t been many.
An Apartment sold in the Upper Eastside by a bank auction. The previous Owner was related to the pension scandal earlier last year and was indebted for about 3.5 Million Yuan.
The roughly 146 sqm Apartment sold for about  6 Million or 42k a square meter before taxes.
Quite a hassle to go through but the price is well below the usual 50-60′000 Rmb other sellers are asking for in Xujiahui’s most exclusive Residential Club. 

Another Oriental Manhattan Apartment is for sale at 29′000 Rmb a square meter, which is not as low as the 27′000 Rmb but still about 20% less than the asking prices were 1 year ago.

Despite all the chao’s Mansions’ and Villa’s in the French Concession seem to hold up.
At least for now.

Quite stunning was that even amidst the Chaos the Mansion on Gao’an Road sold for 80 Million Rmb or roughly a 100k Rmb per square Meter.
Or about half this price if you count the 1000 square meter garden as area too.
Additional Information and pictures to the House here in one of our previous ads for the property.

A few larger French Concession Villa’s have sold in the same price per square meter range but where considerably smaller.
1 Went on YongfuRoad for abouts 23 Million, 2 million less than it’s original asking price of 25 Million Rmb.
And also a little more than a 100k Rmb per square meter.
An Anfu Road Mansion near Changshu Road sold late August for 36 Million Rmb, it had an area of about 395 square meters, putting the price per square meter at about 90′000 Rmb.

A savvy Investor bought an historic Villa on Wukang Road with huge Yard by buying out three families for a combined price of 33 Million Yuan or about 50k a square meter.
A Hell of a deal.

Prices have come down quite a bit on Tianshan Road, First Phase Oasis Riviera has units for sale between 19 and 23k A square meter,  which is about 15% less than 6 months ago.
Yet next door Yanlord’s prices have changed little and apartments are still in low supply.

New Developements near Yanggao Road are selling for as low as 9000 Rmb a square meter and have drawn a lot of interest.
Apartments have been sold but generally people are still having a wait and see attitude.

Download the whole list of sales in the Puxi Area from us here 

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