Tag Archives: shanghai

Shanghai Real Estate Market Tightly Monitored

Shanghai wants to avoid a scenario similar to 2009 America’s housing crisis. The situation in the Chinese city, facing a surge in dubious real estate loans, reminds us of the situation in the United States before the subprime crisis which drove the world to the worst recessions since the Great Depression in the 1930s. In reaction to the surge of real estate prices in Shanghai, the municipality has forbidden bank loans for six major property agencies. This is another measure taken by Chinese authorities to cool down the housing market.

 

Chinese Economy Highly Dependent on Real Estate

Real estate, nevertheless, allows the growth to sustain and is one of the main pillar of the economic development of China. The housing sector accounts for 15% to 20% of China’s GDP in 2016. A slowdown or a rebound in the sector activity have direct and big impacts on the other industries that depend on it. The rebound of the real estate industry is one of the main reason of the recovery of the Chinese manufacturing sector in the last two months, after it dropped off in the last quarter of 2016, thanks to a massive increase in loans granted by banks.

Although Shanghai has already taken several measures to try to curb the increase in prices, the real estate market is still very dynamic. Industry players fight fiercely through advertising campaign to attract investors looking for opportunities to invest their money. If the city center  of Shanghai appears to be a saturated market, residential buildings in suburban districts sprout like mushrooms and experience the strongest rise in prices. The type of housing usually consists of nice apartments in premium compounds with onsite facilities. According to China Real Estate Index System, prices rose by more than 6% in suburbs of Shanghai like Songjiang or Jiaxing.

In Songjiang, property prices are between $5,000 and $13,000 per square meter. There was a slowdown after the strong increase (+ 17.5%) beginning of 2017, which lead the authorities to restrict the purchasing conditions for non-residents and increased the initial input required from buyers.

Since then, property prices have cooled down, but everything leads us to believe that the curve will continue to rise. In Shenzhen, the metropolis that faces Hong Kong, apartment prices have risen more than 57% since 2015. This could inspire landlords of other major cities of China. Especially since it has never been so easy to buy: interest rates have fallen six times last year. “The conditions for real estate buyers have probably been the most favorable for ten years,” said Steven McCord, an analyst for the real estate consulting firm Jones Lang LaSalle.

Lower interest rates

Shanghai implemented new restriction on the purchase of apartments and houses. According to Caixin, the city would consider increasing the initial contributions up to 50%, or even 70%, for purchasing a second home. However, with the increase of online banking services, it is now easier to obtain loans that traditional banks cannot grant.

According to the Shanghai-based Yingcan real estate analysis firm, private lending platforms lent 924 million yuan ($ 180 million) to finance these initial payments, three times more than in July 2015. The interest rates of these online services can reach 25% per year.

However, online finance is not the only one responsible. In order to be legal, real estate transactions must be done through agencies which take advantage of their position to act as intermediaries for loans, but also as a screen between banks and customers.

Since March 2017, banks refuse loans to the six agencies punished by the authorities. They are the largest agencies on the market. Investigations have also been launched against online finance since the beginning of the year.

Shanghai is the most expensive city for expatriates in Asia

                                                            View of Lujiazui financial district with Shanghai Tower, SWFC and Jin Mao Tower

According to a survey on the cost of living in the world, which gives the rise of the Yuan as the main cause, Shanghai is the most expensive city in Asia and the 7th most expensive in the world for expatriates.

Beijing, Hong Kong and Guangzhou are ranked 8th, 9th and 14th respectively, even surpassing New York’s famous district Manhattan, which ranked 15th in the survey by ECA International, a London-based consulting firm. Beijing is the second most expensive city in Asia.

Manhattan is the only US “city” listed in the top 20, with behind it another Chinese city, Shenzhen, in 16th place.

Four Swiss cities are also among the most expensive – Zürich, Geneva, Bern and Basel – and two African cities – Luanda, Angola and Kinshasa, in the Congo – which are respectively 5th and 6th.

“Despite the Yuan’s depreciation against the US Dollar over the summer, it has strengthened against most other major currencies, making Shanghai the most expensive city in Asia for Expatriates, “said Lee Quane, ECA’s regional director for Asia.

“This reflects the general trend seen in China, with Chinese cities gradually rising in our rankings over the past few years. It is likely that large Chinese cities will remain expensive destinations for mobile executives in the foreseeable future, “he added.

Shanghai and Beijing are on average more expensive than Manhattan for most foods, although fresh fruits and vegetables are more expensive in Manhattan. International clothing brands are much more expensive in Beijing and Shanghai than in Manhattan, while eating at a restaurant is much cheaper,” said James Davis, director of marketing and communications at ECA International.

ECA International investigations are based on a basket of day-to-day goods and services commonly purchased by expatriates, such as grocery products such as dairy products, meat and fish, fresh fruits and vegetables, As well as household items, general and recreational services, clothing, restaurants, alcohol and tobacco.

According to Davis, 500 grams of ground coffee costs 22.66 dollars in Shanghai, compared to 14.52 dollars in Manhattan. Similarly, a costume costing 676.67 dollars in New York is worth 1110.49 in Shanghai.

The marinara sauce is cheaper in Shanghai if you do it yourself. A kilo of tomatoes in Shanghai costs half of what it is worth in Manhattan.

“I find that food and other living expenses are relatively cheap if I only use Chinese products and eat at local restaurants but if you have the smallest urge for imported goods or international restaurants, Usually it’s quite expensive, “said Elizabeth Oppong, an American who worked in Shenzhen.

“I have reduced the costly habits like Starbucks and shopping in international stores,” she said.

Travis Joern, an expatriate in Shanghai for the Canada-China Business Council, tries to stick to local products. “For foreign food products, you are paying the extra import duties, but for local food, it’s quite affordable,” he said.

All Chinese cities climbed in the ranking from the previous year. Shanghai, Beijing and Hong Kong are all in the top 10 while they were 12th, 13th and 26th last year. Guangzhou went from 30th to 14th place, and Shenzhen climbed 29 places, going from the 45th to the 16th.

The Manhattan area also grew strongly from 38th to 15th place.

According to ECA, the rise in the US dollar between surveys has resulted in a rise of US cities in the ranking. Miami thus gained 62 places to move to the 71st.

“Although the prices of our commodity basket have fallen in some US cities, the rise in the US Dollar means that it is increasingly expensive for companies to move their personnel to the United States, “Said Michael Witkowski, vice president of ECA International New York.