Archive for Market Trends

Is disaster looming? Or will Shanghai defy all naysayers after the expo?

Dear Shanghai and of course, everybody else reading this out there….

…. happy chinese new year!

I’ve had a break, for the first time in years, and really was able to put some thought into the madness of this Real Estate market we all love.

First, upfront, I’m speculating based on my experience and “insight” into the inner workings of this market.
It’s not a numbers game, it’s as I always say here, plain common sense to me.

And this post is a question asked to the future, not a prediction.

So, now, to get at it.
Recently our real estate firm got a lot of new customers that came directly related to the expo, several countries are sending in people just for the expo, and companies do so though.
That for us amounted to about an extra 30 or so clients that are directly involved in the 2010 Shanghai Expo.
Most will stay for a year starting now and are looking for apartments downtown, though some chose Pudong it was mainly downtown.

Realizing that they’re snapping up lot’s of commodity out there and started putting a small squeeze into a previously relaxed market I asked myself what happens after they all leave.
Obviously, it’ll go back to it’s more relaxed state of 2008 and 2009.

But, how many people are here, indirectly involved with the expo?
And how many will stay, or more importantly leave when their employment contract expires after or during the expo year?

I looked back a few cases, and counted, there is an endless number of advertising client-el that arrived in the city because of the 2008 Olympics, a lot of them left, but some stayed.
I wonder how many stayed just because of convinience for the expo being so close a date?

We had a few engineers and IT people too, from firms, not solely working on the olympics or expo, but with a few projects tied to it.
Will the demand for this highly technical skill drop after?
How significant will the drop be if that’s the case?

I don’t know, it would be a prediction.
What I remember from the short downturn during the financial meltdown i the US is that landlords panicked, and competed against each other just 2 months in when the market was in a seasonal low anyway (christmas, western and chinese new year), resulting in some rents being had at 50% of the previous price.
Things quickly picked back up when the demand for rental properties was back to the usual high of march and april.

This year it started early, and it’s at least partially related to the expo.
Remembering the panic price slashing that time I don’t know if it’s a good thing that landlords went by without the yearly dryspell of places staying vacant for a whole month or longer (obviously, there are places like that, but these are deadbeats, bad places that stay vacant in the hottest markets anyway).

I don’t see 1000’s of places being empty after the expo, but it could easily be, that if a lot of people leave because this thing is over people go back to panic price slashing, just the difference would be that this downturn is for good.

Would a slow rental market affect prices of luxury items in the city?
I think a long slow market could do that, I mean, who wants to sit on a place they can’t rent out for the price of their mortgage?

Will investors scoop the bargains like they always did before, or will they recognize that this slow market might hold for a long time and spark a correction?

Thoughts anybody?
And please, don’t take my ramblings to serious! :-)

Filed under: Developements, Economy, Market Theory, Rumors, Shanghai Real Estate News | , , , |1 Comment

Rentals don’t follow prices up

Shanghai Real Estate has been on a real run alongside the stock index this year.
Though volume has slumped prices hold up pretty well and most recently have hit new highs in many commercial centers such as Xujiahui and Xintiandi.

Why the market moves up can be argued with a lot of reasons.
What has struck me about this “real estate rally” is that there is no correlation with the rental prices.
I’ve looked back in our database back to 2005 and have found that in many cases rents actual move opposite directions.

It could be that the two are not as interconnected as previously thought, and it could also mean that the market is healthier now than before, meaning that lower rents and no rents don’t force landlords to sell the property prematurely.

I compared our database and rents were a lot higher in 2005 then they were in 2004, they also went up in 2006 when the sales market stalled.
Yet in 2007 they were virtually the same.

In 2008 rents went down from 2007, mainly because of the panic resulting from the massive failures on wall street (like bear stearns).
Interestingly the stock market came down in a craze too but sales were stronger.
They’re still moving up until today yet rentals have come down from 2008 but are a little  bit higher than in the beginning of 2009.

I link more of those to emotions, places don’t stay empty, they get rented out, fast, I would even say quicker than before.
But, Companies have more negotiation leverage, the economy is bad, and they pressuring landlords into lower prices now, and it works, mainly because landlords are letting others worry them.

Filed under: China Real Estate, Market News, Market Theory, Trends | , , , , |No Comments

Eh, I think I got the handle of it, high demand but dropping prices

So, I thought about this a long time, because it didn’t make any sense.
I tried to explain, and yet, still, it didn’t make any sense.

Places rent fast these days, even quicker than last year, and there isn’t a lot of desirable properties available, at least in the French Concession.

I guess it’s fear, now for the first time, renters actually are forced to negotiate harder, and have more confidence to do so, Landlords hear bad news all around, and though it may be one of their first visitors that take the place they are willing to accept offers way below last years price.

There are still bidding wars, but they usually start way below and still end up below the last  rental.
I think it’s a healthy adjustment, it gets people to move out of several reasons.
Some couldn’t get their current place down to a rent they find fair in the current market condition, and some just found out about the great deals available now.

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China’s mortgage bubble save, for now.

Few days ago I was struck by this article in the new york times.

It’s about a few people’s stories who made downpayments of several hundred thousand dollars for developements that weren’t finished then.
Most of those represented 10% of the actual price.  
Now that there is a credit crunch, those sweet 90% low interest mortgage deals are no more, many of them require 20% to 50% down nowadays (depending on junior and jumbo deals if I got that right).
So if you paid an initial 100′000 US$ down on a place that’s 1 Million in total you’d have to come up with at least another 100′000 US Dollars or you’re deposit will go up in smoke as the article states.
That’s pretty harsh, but from the article it seems fairly common.

Now, I can tell you, this would never happen in China. The government would rather have the developers give the houses away for free than face a horde of angry people (who are many), that just lost all their savings.

I’ve been really thinking about it, and it doesn’t seem like this is going to change anytime soon.
The Party is very people concious, actually a lot more than anywhere else in the world, and if you think about it, that’s a good thing, at least in the short term.
Policies are always going to favor the individual investor.
Because as long as they keep the bull running, who cares about anything else?

Filed under: General News, Trends | , , , , , |No Comments

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).

Filed under: Market News, Shanghai Real Estate News, Trends | , , , |No Comments

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