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Shanghai Luxury Residential - Q1 2012
May 11, 2012
Shanghai Luxury Residential
Shanghai government restrictions on home purchases continued in the first quarter of 2012, but a revised "normal" housing criterion was issued to expand the scope of beneficiaries who can enjoy the preferential tax policies. The leasing market witnessed a number of newly developed serviced apartment projects in the first quarter. The average luxury rent increased 3.5% quarter on quarter to RMB171.2 per sq m per month. In the first quarter, new luxury residential supply dropped by 70% quarter on quarter to 70,000 sq m. Shanghai Arch, developed by Sun Hung Kai Properties, launched in March with asking prices ranging from RMB93,100 per sq m to RMB264,000 per sq m. The average luxury residential sales price decreased 3.2% quarter on quarter to RMB48,660 per sq m. However, some luxury residential developers achieved good sales as they offered huge price discounts.
Shanghai luxury residential
The government is unlikely to ease tightening measures in 2012, so we expect that luxury home prices will continue to fall for the rest of the year.
7 70 93,100 264,000
Although transaction volume and sales prices in the luxury residential market plunged in the first quarter, some developers still achieved good sales through price deduction.
In the first quarter, the government strengthened property restrictions and issued new monetary policies. On the restriction front, the government confirmed that even non-local residents who have lived in Shanghai for at least three years are not permitted to purchase a second home. In terms of "normal housing", the authorities revised the criterion and expanded the scope of beneficiaries enjoying preferential tax policies for housing categorised at "normal" level. On the monetary aspect, the central bank reduced the reserve requirement ratio (RRR) to 20.5%. In the first quarter, the luxury residential rental market remained active, with increases in both rents and occupancy rates. Driven by an increasing number of expatriate employees coming to Shanghai, luxury rental demand continued to grow. In terms of supply, a number of luxury serviced apartment projects opened in the first quarter, providing 481 serviced apartment units to the market. In the sales market, as buying demand continued to decline, both transaction volume and sales prices in the luxury residential market plunged in the first quarter. However, some developers still achieved good sales with price reduction. New luxury supply dropped further to 70,000 sq m, with Shanghai Arch in Little Lujiazui being one development of the few to launch its luxury apartment units for sale in the first quarter. Only two plots of residential land were transacted in the first quarter, 25 plots fewer than the same period of the previous year. These two residential plots were located in Chongming and Qingpu respectively and, due to a slowdown in the sales market, were transacted at their reserve prices.
Shanghai luxury residential
Even non-local residents who have lived in Shanghai for at least three years are not equivalent to local registered residents, which means non-local residents are not allowed to buy a second home in Shanghai.
New criterion released in Shanghai in the first quarter will help more people qualify for preferential tax policies for buying "normal" housing. This is expected to boost transaction volume. The new specifications further define "normal housing" as a flat within the city's Inner Ring Road, between Inner and Outer Ring Roads and outside Outer Ring Road priced less than RMB3.3 million, RMB2.0 million and RMB1.6 million respectively. Other conditions remain, such as building type and the GFA of each unit not exceeding 144 sq m. The revised criterion is expected to allow more homebuyers, particularly end-users, to become eligible for preferential tax policies. To clarify a rumor regarding second home purchase, the Shanghai government issued "Notice of Continuation of Real Estate Market Control Policy Implementation to Promote Affordable Housing System". Even non-local residents who have lived in Shanghai for at least three years are not equivalent to local registered residents, meaning non-local residents are not allowed to buy a second home in Shanghai. As inflation softened, authorities eased the monetary policy in the first quarter. The People's Bank of China announced a reduction of 50 basis points in the reserve requirement ratio (RRR) in February. The RRR for large banks thus now stands at 20.5%. This is the first RRR cut this year and serves to loosen liquidity.
144 330 200 160
Supply and Demand
A number of luxury serviced apartment projects opened in the first quarter, providing a total of 481 serviced apartment units to the market.
New rental supply surged in the first quarter. Three serviced apartment projects, namely the Peninsula Residences at the Bund, the IFC Residence in Pudong's Little Lujiazui and One Executive Suites adjacent to Nanjing West Road, were launched, adding a total of 481 serviced apartment units to the market. Located in the Bund area, the Peninsula Residences is part of The Peninsula Shanghai, a luxury hotel jointly developed by SPG Land and Hongkong and Shanghai Hotels Limited. Peninsula Residences has 39 fully furnished apartment units ranging from 1-bedroom to 4bedroom. The IFC Residence, developed by Sun Hung Kai Properties, is a part of the mixed use project Shanghai IFC. At the time of writing, the IFC Residence had launched 198 units for rent, from 1bedroom to 3-bedroom with sizes from 71 sq m to 213 sq m. Lastly, One Executive Suites, developed by Golden Union and managed by Kempinski Hotels, has 244 serviced apartment units, ranging from 1-bedroom to 3-bedroom with sizes from 62 to 600 sq m.
481 39 198 71-213 244 62-600
In the first quarter of 2012, new home supply in Shanghai decreased 60% to 1.08 million sq m, whilst luxury new supply declined 70% to only 70,000 sq m. New luxury residential projects launched in the first quarter included Shanghai Arch, developed by Sun Hung Kai Properties and Bond Castle developed by Sino-Ocean Land, bringing 195 apartment units and 23 detached villas, respectively, to the market. However, some projects, such as Estuary Palace, the Sanctuary at Dongtan and San Torini Villa, postponed their launches to until the second quarter amid weak market sentiment and cooling policies. We expect the supply of villa developments is likely to increase in the second quarter. With both the effects of the Spring Festival and the tightening policies on the residential market, Shanghai new home sales decreased 7.3% quarter on quarter and 13.6% year on year to approximately 1.4 million sq m in the first quarter. Thanks to the price reductions offered by luxury project developers, luxury home sales only declined by 3.9% quarter on quarter to 85,188 sq m, a decrease of 1.6% year on year. In the first quarter, Hysun Project in Xuhui District and Star-River in Pudong District sold 72 and 59 units respectively after offering huge price discounts. The transacted prices averaged RMB62,841 per sq m and RMB53,762 per sq m respectively, 15-20% lower than the asking prices.
Rents and Prices
In the first quarter, the luxury rental market remained buoyant as both rents and occupancy rates continued to rise. The luxury housing rents increased 3.5% over the previous quarter, a significant rise, to RMB171.2 per sq m per month.
In the first quarter, the luxury rental market remained buoyant with both rents and occupancy rates continuing to rise. Luxury housing rents increased 3.5% over the previous quarter to RMB171.2 per sq m per month. The average rent of serviced apartments increased by 4.6% to RMB204.0 per sq m per month. Serviced apartment projects along Huaihai Middle Road achieved a quarter-on-quarter increase of 10% in rents and an occupancy rate over 90%. Of all new serviced apartments launched in the first quarter, the Peninsula Residences located at the Bund recorded the highest rent at RMB720 per sq m per month. Despite the high rents, the Peninsula Residences still achieved over 15% occupancy rate within a short period of time.
171.2 3.5 4.6 204.0 10 90 720 15
In the first quarter, Shanghai's new home prices averaged approximately RMB21,539 per sq m, a decrease of 3.2% over the previous year. Luxury home prices reached RMB48,660 per sq m, down 3.2% quarter on quarter and 8.0% year on year. It's clear that price reduction by developers had extended to the luxury market. Luxury projects such as Star-River, Hysun Project and Amazing Bay achieved significantly lower transaction prices with a 15-20% variance from asking price. The newly launched Shanghai Arch became the most expensive residential project in the market with asking prices ranging from RMB93,000 per sq m to RMB264,000 per sq m. By the first half of this April, 10 apartment units in the low zone of Shanghai Arch were sold at prices between RMB99,400 per sq m and RMB123,000 per sq m.
Type Apartment Apartment Villa Apartment Apartment
(sq m) 108 97 170 81 215
One Park Avenue Jing'an Boutique Seasons Villa Lanson Jinqiao () Skyline Mansion
Source: Knight Frank Research
Selected luxury apartment sales transactions, Q1 2012 Block / floor / 8/3 3/18 Area (sq m) 353 247 Total price (RMB million) 58.2 31.0 Unit price (RMB / sq m) / 165,117 125,437
District Huangpu Huangpu Huangpu Xuhui Xuhui Xuhui Hongkou Pudong
Building Casa Lakeville The Paragon The Bound of Bund Shanghai Bay The Palace The Hysun Above The Bund Star-River
1/23 1/14 1/8 18/11 22/3
263 138 378 240 364
22.2 10.5 24.0 20.9 21.0
84,248 76,322 63,507 86,826 57,758
Source: Shanghai Real Estate Trading Centre / Knight Frank Research /
Shanghai luxury residential
Selected luxury villa sales transactions, Q1 2012 Unit Area (sq m) 310 419 270 Total price (RMB million) 15.5 51.9 18.4 Unit price (RMB / sq m) / 50,062 123,918 68,002
District Pudong Pudong Pudong Songjiang Baoshan
Building Eastern Palace Seasons Villa Upper East Side Mandala Garden Bond Castle
125 150 135
Source: Shanghai Real Estate Trading Centre / Knight Frank Research /
LongFor Affecting Yard sold 192 apartment units to an anonymous buyer at an average unit price of RMB14,525 per sq m.
Though the residential investment market has been quiet in recent months, there was one en-bloc residential sale transaction in the first quarter. LongFor Affecting Yard, a residential community located in the Songjiang New Town area, sold 192 units, with a total GFA of 18,750 sq m, to an anonymous buyer on 30 March. It is said that the buyer might be a fund company. The average price for the apartments sized from 70 sq m to 196 sq m was RMB14,525 per sq m. With the sales of 192 units, Longfor Property secured a cash revenue of RMB270 million.
192 18,750 14,525 70-195 2.7
With shrinking demand and price reductions extending to the luxury market, we expect luxury home prices to continue to fall in the rest of 2012.
Boosted by the confidence of foreign-invested companies in the Shanghai market, leasing demand for luxury apartments will remain strong. Newly opened luxury serviced apartments are expected to push up rents. In terms of supply, the Jing'an Kerry Residence is scheduled to re-open in the second quarter after the completion of its renovation, adding 133 apartment units to the luxury leasing market. The existing restrictions on home purchase will remain the major hurdle for the growth of demand. With shrinking demand and price reductions extending to the luxury market, significant price discounts on luxury apartment and villa products will become more frequent. Considering this, we expect luxury home prices to continue to fall in the rest of 2012.
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