For most of you that know me, I have been in a dilemma for the past few years, running by some amazing opportunities, but always feeling the market has rushed up to much.
I felt like this since about 2008 after the small dip and rebound that came along with the financial crisis.
Now think about how the big party must feel, trying, yet, not being able to reign this big red dragon that is china’s real estate market.
Don’t get me wrong, there is value, it makes a lot of sense to pay a premium especially here in Shanghai, in a city where expatriates, enterpreneurs, and migrate workers are flowing in, settling, and calling it their new home.
Where incomes surge, and fortunes are created and go bust every day (probably every hour), where you can make money in endless ways, and where, sometimes, actually most of the times, location is everything.
I have been here, and fell in love with this business, only because it’s china, and the endless real opportunities i’m presented here everyday.
They’re trying to focus on Shanghai and Beijing, and the investment just flows westward, Xinjiang’s Urumqi is one of those benefiting where some prices have allegedly risen 50% this year already.
It seems like whatever is done, the market has an answer, and Real Estate still seems a safe bet.
A slowdown, yes, but only regionally, with the increases being moved elsewhere by the same people (buyers and sellers alike).
Rising interest rates, and bank limits as well as taxes have shown little effect.
May I suggest something more drastic.
Introduce an alternative, maybe uhm, a bond market?
When property first started getting hot here, most investors came and, well, made amazing fortunes.
After the 2005 downturn, property was still hot, but more of those investors already had quite some capital to go around with, and they knew the boom-days for flipping are over.
I remember talking to some of my Whenzhou Customers, who buying up small properties everywhere, whenever they could, 3 or 4 a month usually, sometimes more.
They weren’t planning on selling the places in the near future, but they bought everything as long as the investment could attain the magical 8% return on capital by renting it out.
Obviously, Today, I think if any of the new apartments can get a 2% RoC they’d be doing pretty good already.
Shanghai’s French Concession is different.
Maybe it’s the trees, the tranquility, the neighbors, the small town feeling, the downtown location, the historical architecture, old treasures and mystery or any of the other things that this area has going for itself.
It’s hot, old houses that anybody but shanghainese, can buy are low on supply but very high in demand.
The same is true in the french concession’s rental market.
Also because most original landlord’s have “different tastes” than western tenants expect in renovation and furniture.
What makes a good place in the french concession?
It’s some outdoor space, a good location, a clean lane, and quietness.
Though not in the plenty, there are properties in the french concession that fit this description and are still attractively priced.
To me these prices are around 25′000 Rmb to 30′000 Rmb.
To illustrate this with some simple examples I take the average of this range which equals 27′500 Rmb per square meter.
And multiply it first by 65 which is about 1′620′000 Rmb.
Now, our ideal 65 square meter 1 Bedroom place in the french concession would be somewhere between jianguo rd and changle road, east of Huashan and west of Changshu Road.
It has high ceilings, and is a ground floor with Garden.
The Garden adds siginificant value, and the high ceilings offer the possibility to add a lot of extra space. (sometimes, part of the garden can also be added).
The Renovation will cost you between 80 and a 100 Thousand Rmb, we’d add radiators, double paned windows, and some humidity control, plus of course, the modern, renovation.
To our experience, if well done, the place will rent between 12 and 15k rmb. Depending on the space added and sqm of the Garden.
This means, RoC will be between 8% and 11%.
Now theory is the smaller the place, the higher the return.
The same calculation with a 100 square meter place that would cost about 2.75 Million Rmb.
Usually these places rent faster, but for less per square meter. Ideal place here has a garden, or terrace, and is a two bedroom.
It will probably rent between 16k and 25k a month.
In this perfect world the least we would get 192000 Rmb a year, or 5.26% RoC.
The median rent would be around 20 thousand a month, 240′000 Rmb per year or a 6.57% RoC. The best case scenario would yield 8.21% a year.
These are a few places that savvy investors picked up, remodeled and rented through us.
This Wuxing Road Place in the picture above has been rented out for 2 years and yields around 7%.
This ground floor garden property set the landlord back about 2 Million and has been rented out for 15k last month, which translates into a RoC of 9% per year.
It isn’t for everyone, countless missteps by other investors have shown the risks.
But a sharp mind, a good eye, a calculator, vision and knowing when to make the move will offer rewards, especially in times like these.
If you are an investor looking to buy a property in downtown shanghai to rent out, you may want to look for a place that offers some outdoor space.
If you’re a tenant looking for a place (then don’t forget to visit shplace.com) and you’re looking for large outdoor space downtown you will have to be prepared for fierce competition from other prospects.
To put things into percpective we decided to pull out some data.
I’ve gone through the latest 20 units we rented out since the beginning of september.
To make things more accurate we didn’t include new places, (because they mainly rent on price difference, scale and availability) and focused on 2 bedrooms in the downtown area.
Prices are between 13000 Rmb a month to 23000 Rmb a month.
Apartments without outdoor space where on the market for an average of 5.75 weeks, and places with garden or terrace were rented out after an average of only 1.8 weeks.
That means it takes roughly 3 times longer for a place to be rented out without any outdoor space.
People are also likely to not leave the place they commited to pre-marturely if the unit features some special outdoor space.
All of the 8 renewed leases this year had outdoor space and all three lease-agreements that have been broken by the tenants (i didn’t included breaches related to relocations because that would make this in-accurate) had no or only little outdoor space.
As for price the average apartment with outdoor space rents for about 15% more than places without garden or terrraces.