Feb 24, 2012
Research
Q4 2011
Shanghai Luxury Residential
Quarterly
HIGHLIGHTS
In the fourth quarter of 2011, the average luxury residential rent continued to increase, reaching RMB165.4 per sq m per month, whilst the average occupancy rate increased 0.5 percentage point quarter on quarter to 88.4%. Central government-owned enterprises with high financial capacity were active in the land market in quarter four. China Railway Real Estate Group and COFCO Property Group acquired residential land at their reserve prices in Qingpu and Fengxian respectively. New luxury residential supply declined in the fourth quarter. The approved pre-sale gross floor area (GFA) of luxury properties was approximately 227,000 sq m, a decrease of 24% compared with quarter three. The average luxury home price started to decrease in the fourth quarter, declining by 5% quarter on quarter to RMB 50,284 per sq m. We believe the restrictions on home purchases are likely to continue in 2012 and the average luxury home price in Shanghai will decrease by approximately 5% next year.
Q4 2011
Shanghai luxury residential
Quarterly
165.4 88.4 0.5
22.7 24
5 50,284
5
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Market Overview
Driven by healthy economic growth and an increasing number of multinational companies entering Shanghai, the market witnessed a large volume of leasing transactions and rising luxury rents.
Shanghai's luxury housing rental market remained buoyant in the fourth quarter. Driven by healthy economic growth and an increasing number of multinational companies entering Shanghai, the market witnessed a large volume of leasing transactions and rising luxury rents. With demand surpassing supply in the luxury market, we also saw promising performances in both rents and occupancy rates. Due to poor sales performance and a lack of capital, developers kicked-off their sales promotions with significant reductions in prices in the fourth quarter. Because of this, some middle to low-end properties were able to achieve a rebound in sales volume. In the luxury housing market, with housing demand restricted and potential buyers taking a wait-and-see approach, both transaction volume and prices dropped in quarter four. However, despite the downturn we noted that homebuyers still favoured certain luxury properties, evident in the satisfactory sales volumes achieved after price reductions in quarter four.
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Q4 2011
Shanghai luxury residential
Quarterly
Land Market
Due to the credit tightening policy and insufficient funds, developers had little desire to acquire lands in quarter four.
To understand the impact of tightening policies, one need only look at the land acquisition strategies of developers this quarter. Over 2011, 60 residential plots were transacted in the Shanghai land market, four plots fewer than the previous year. The total number of plots transacted in quarter one of 2011 amounted to 43% of the whole year's residential land supply in 2011. With restrictions on home purchases, developers were under heavy financial pressure as new home sales volume plunged. The land market in the second half saw developers take a cautious approach to land acquisition and low premium rates. The average land premium rate in Shanghai was 64% in the first quarter of 2011, compared with only 5% in the second half of 2011. Due to credit tightening policies and insufficient funds, developers had little desire to acquire land in quarter four. As a result, the land market was quiet, with only 11 residential plots transacted, three plots fewer than the previous quarter. Most of this transacted land is situated in suburban districts such as Qingpu and Fengxian and was sold at the reserve price or with low premium rates. Some central government-owned enterprises with high financial capacity were active in quarter four's land market. China Railway Real Estate Group and COFCO Property Group acquired residential land at reserve prices in Qingpu and Fengxian respectively. A transaction of note involved TIMOST Investment Limited, a subsidiary of Hutchison Whampoa Limited, which acquired No. 16 Plot in Qingpu Zhaoxiang Town at the reserve price of RMB1.41 billion, the highest residential land price in the fourth quarter. The No. 16 Plot covers a site area of 144,482 sq m with an allowed total GFA of 147,372 sq m. The accommodation value of the plot was RMB9,559 per sq m, 56% lower than that of the adjacent No. 17 Plot that was acquired by Trade Pro Investments Limited in 2010, also affiliated with Hutchison Whampoa, for RMB21,865 per sq m.
60 4 43 64 5
11 , 3 TIMOST 14.1 16 144,482 147,372 9,559 21,865 17 56
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Supply and Demand
In the luxury residential market, transaction area decreased by approximately 5% quarter on quarter due to declined purchasing demand resulted largely from the restrictions on home purchases.
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In the fourth quarter, new supply of luxury rental units remained limited. Newport Tower Serviced Apartments was the only project that came online during the quarter, adding a total of 212 serviced apartment units to the market. Located in Zhuyuan Commerce & Trade Zone, Newport Tower Serviced Apartments is owned and managed by Hong Kong Siu On Real Estate Development Co., Ltd. This new serviced apartment project offers tenants two and three bed units with sizes ranging from 110 to 120 sq m. The imbalance of supply and demand in the luxury rental market pushed up the occupancy rate slightly by 0.5 percentage points quarter on quarter despite fourth quarter being a traditional low season. The average occupancy rate soared in Puxi's luxury villa market, whilst Pudong's occupancy rate remained firm. In the overall residential market, new home supply in Shanghai decreased 11% quarter on quarter to 2.49 million sq m. Of this, approximately 227,000 sq m was luxury properties, a decrease of 24% compared with the previous quarter. While the fourth quarter is a low season for launching new projects, last quarter we saw some developers go against the grain and choose to launch their new projects. For instance, the Paragon in Luwan District brought 116 fully decorated apartment units to the market at asking prices ranging from RMB90,000 to RMB130,000 per sq m, whilst the Grand Mansion in Yangpu District added 153 villas priced at RMB60,000 to RMB160,000 per sq m. In the fourth quarter, Shanghai's new home sales volume amounted to 1.53 million sq m, down 19.9% from the previous quarter. In the luxury residential market, the transaction area decreased by approximately 5% quarter on quarter due to declining demand resulting largely from the restrictions on home purchases. However, some projects with comprehensive presale preparations achieved good sales performances in the fourth quarter, avoiding a significant plunge in sales volume in the fourth quarter. For instance, The Paragon and Great Mansion sold seven apartment units and seven detached villas respectively, but these were at lower transaction prices compared with their asking prices, RMB93,800 per sq m and RMB125,000 per sq m respectively.
212 110-120 0.5
249 11 22.7 24 116 90,000-130,000 153 60,000-160,000
153 19.9 5 7 7 93,800 125,000
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Q4 2011
Shanghai luxury residential
Quarterly
Rents and Prices
In the fourth quarter, luxury home prices continued to decrease, by 5% quarter on quarter to RMB50,284 per sq m.
5 50,284
In the luxury rental market, both rents and occupancy rates continued to rise during the fourth quarter. Luxury housing rents increased marginally by 0.3% over the previous quarter to RMB165.4 per sq m per month and the average occupancy rate went up by 0.5 percentage points to 88.4%. During 2011, luxury housing rents rose by 8% compared with 2010. Luxury apartments in the city centre outperformed other sub-sectors in terms of rental growth. For example, both the Summit and Chevalier Place recorded quarter-on-quarter growth of over 4% in rents and over five percentage points in occupancy rates.
0.3 165.4 0.5 88.4 8 4 5
Towards the end of the year, an increasing number of developers offered price discounts to boost sales volume and ease their financial difficulties, with price reduction even extending into the luxury market. In the fourth quarter, luxury home prices continued to decrease, dropping by 5% quarter on quarter to RMB50,284 per sq m. In addition to the common practice of granting discounts to property buyers who pay in lump sum, more developers actively lowered prices to adapt to market needs. As examples, the two projects of Star-River Group, Shanghai Star-River and Pudong Star-River, offered significant price discounts of between 15% and 20%, indicating the start of price correction in the luxury housing market.
5 50,284 15-20
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Luxury Residential Sales Volume and Average Price, Q1/2006 to Q4/2011
Sales Volume of New Luxury Housing Market (LHS)
Luxury Home Price Index (RHS)
600,000
sq m
Q1 2006=100
250
500,000 400,000 300,000
200,000
200
150
100
50
100,000 0
Q1/06 Q1/07 Q1/08 Q1/09 Q3/07 Q2/06 Q2/08 Q2/09 Q3/09 Q3/06 Q3/08 Q2/07 Q1/10 Q3/10 Q4/06 Q4/07
Q4/09
Q4/10
Source: Knight Frank Research, Shanghai Real Estate Trading Centre
Selected luxury residential leasing transactions, Q4 2011 Area (sq m) 480 197 211 240 448 Rent (RMB/sq m/month) (//) 156 150 223 117 134
District Changning Pudong Pudong Pudong Pudong
Building Windsor Place Yanlord Town Fraser Suites Shimao Riviera Garden Vizcaya
Type Villa Apartment Apartment Apartment Villa
Source: Knight Frank Research
Q4/08
Q2/10
Q4/11
0
Q1/11
Q2/11
Q3/11
7
Q4 2011
Shanghai luxury residential
Quarterly
Selected luxury apartment sales transactions, Q4 2011 Block / floor / 6/33 Area (sq m) 132.36 Total price (RMB million) 7.29 Unit price (RMB/sq m) / 55,049
District
Building No.989 Xi Kang Road The Palace The Paragon Regal Mansion The Bound of Bund Shanghai Bay Star-River The Hysun
Putuo Xuhui Luwan Putuo Huangpu Xuhui Pudong Xuhui
1/15 1/15 61/11
178.37 213.96 226.87
14.21 21.70 16.05
79,657 101,428 70,753
10/10
413.73
44.93
108,586
3/12 20/3 5/12
371.72 317.73 304.27
25.79 23.56 22.43
69,377 74,155 73,709
Source: Shanghai Real Estate Trading Centre / Knight Frank Research /
Selected luxury villa sales transactions, Q4 2011 Unit Area (sq m) 319.71 411.24 503.77 Total price (RMB million) 47.29 54.87 60.89 Unit price (RMB/sq m) / 147,920 133,424 120,869
District Pudong Yangpu Songjiang Songjiang Jiading Qingpu
Building Regency Park Grand Mansion Top Forest Villa Mandala Garden Central Park · Taranto Villa
95 126 138
2010
452.78
50.07
110,578
39
280.29
15.41
54,991
29
562.62
31.69
56,322
Source: Shanghai Real Estate Trading Centre / Knight Frank Research /
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Outlook
It is anticipated that price reduction will remain a major promotional tool in the first half of 2012. Both sales volumes and sales prices are expected to continue to drop.
With a stable economic environment and increasing demand from foreign companies, more expatriates are relocating to Shanghai and taking up much of the luxury rental supply. Consequently, luxury housing rental demand has been continuously accelerating. We expect both occupancy rates and rental rates to increase in the short term. Apartment units with monthly rents between RMB8,000 and 15,000 will see the most demand and we will see higher growth rate in rents. Overall, luxury rents are expected to grow by 8% in 2012. On the supply side, The Peninsula Residences, a luxury serviced apartment development affiliated with The Peninsula Hotel on the Bund, is set to open in early 2012, bringing a total of 39 apartment units to the area. In the sales market, we believe that both restrictions on home purchases and tightening credit policies are likely to continue in 2012. Developers under financial pressure will be actively launching their projects in the first half of 2012 in order to secure a quicker capital return. With increased supply and restricted demand, it is anticipated that price reduction will be a major promotional tool in the first half of 2012 and that both sales volumes and sales prices will continue to drop. We expect sales prices in the overall market to decrease by 10% and prices in the luxury market to drop by 5% in the coming year.
8,000-15,000 8---- 39
10 5
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RESEARCH
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Shanghai research contact Regina Yang Head of Research & Consultancy +86 21 6032 1788 regina.yang@cn.knightfrank.com Mars Yin Research Analyst +86 21 6032 1788 mars.yin@cn.knightfrank.com Other research contacts Greater China Thomas Lam Head of Research +852 2846 4819 thomas.lam@hk.knightfrank.com Beijing Jacky Wei Senior Manager of Research +86 10 8518 5758 jacky.wei@cn.knightfrank.com Shanghai residential contact Larry Hu Head of Residential +86 21 6032 1788 larry.hu@cn.knightfrank.com North China Mark Sullivan Managing Director +86 10 8518 5758 mark.sullivan@cn.knightfrank.com South China Clement Leung Executive Director +852 2846 9593 alex.ng@hk.knightfrank.com
General enquiries East & Central China Graham Zink Managing Director +86 21 6032 1788 graham.zink@cn.knightfrank.com
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© Knight Frank 2012 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research.
