China property: revival in Shanghai, Beijing and Shenzhen luxury home prices bodes well for mass market

Recovery in China’s luxury home market is gaining pace even as the rest of the residential segment is struggling with lacklustre demand. However, the government’s recent measures could reverse the overall property market slump, analysts say.

In Shanghai, high-net-worth families are snapping up expensive houses at record speed, while buyers in other big cities are also eyeing premium properties as a lower-risk alternative to the stock market.

On Thursday, Singapore’s CapitaLand sold all 75 flats at its Shanghai luxury project within 45 minutes of launch, pulling in 3.1 billion yuan (US$492.4 million). The price of the project, located in the central Huangpu district, at 168,000 yuan per square metre was not a deterrent, as it was nearly five times oversubscribed. New homes in Shanghai were sold at an average price of 65,920 yuan per square metre in February, according to real estate information provider Fang.com.

Throughout April, developers in Shanghai sold 24 billion yuan worth of luxury homes priced at 20 million yuan and above, a 156 per cent jump from a year earlier, according to figures from data provider China Real Estate Information Corp (CRIC).

10:57

Boom, bust and borrow: Has China’s housing market tanked?

Boom, bust and borrow: Has China’s housing market tanked?

“Shanghai has witnessed at least three instances of luxury homes being sold out so far this year,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. “This sufficiently demonstrates the resilience of the city’s premium property market, and could be a sign that China’s property market is taking a turn for the better.

The Shanghai projects that were in hot demand were centrally located, Yan noted, adding the recovery of the premium property segment will cascade to the mass market.

Yan’s observations echoed those of Bob Li, a Shanghai-based entrepreneur, who told the Post that his family had been looking to buy a luxury home in a prime location, as they expected prices to increase because of limited supply.

“The rarity of luxury homes, particularly those along the banks of Huangpu River, make them easy buys despite the lofty prices,” he said. “They are unlikely to see a price drop given the buying interest surrounding those new homes hitting the market recently.”

Li said that over the past month he had already entered four lotteries for buying new homes, but had no luck so far. Lotteries are a mechanism used by developers to select buyers when a new project is oversubscribed.

Besides Shanghai, a recovery in the luxury home market is slowly but surely taking place in other tier-one cities.

In Beijing, transactions in the premium segment jumped 51.3 per cent month on month to 9 billion yuan in April. However, the value was 18.8 per cent lower year on year.

In Shenzhen, China’s technology hub, transactions rose 6.6 per cent month on month in April to 1.4 billion. On a year-on-year basis, it was still 33.3 per cent lower.

“In the primary market, an increase in the supply of premium properties, compounded by the fact that certain projects are being offered at prices even below pre-owned luxury homes, are a huge boost to market sentiment,” said CRIC analysts in a March report.

The report also pointed to the growing clout of high-net-worth individuals across the country as another pillar supporting the stabilisation and recovery of the luxury home market.

The upturn in the premium residential market comes as the central government made its most ambitious attempt yet to rescue the country’s slumping property market, with the People’s Bank of China announcing on Friday that it will set aside 300 billion yuan for affordable housing.

The central bank also removed the national lower limit on mortgage rates and made further down payment cuts to shore up confidence among homebuyers, while top decision makers urged local governments to buy unsold homes and digest excess inventory.

Prices of new homes across the country fell 0.6 per cent month on month in April, marking an 11th straight month of decline. In the secondary market, home prices weakened 0.9 per cent, marking the 12th consecutive month of decline, according to official data.

“The measures unveiled this time around are targeting both the supply and demand side, and will help to accelerate a rebound in the property market,” said Shen Meng, director of Beijing-based investment firm Chanson & Co.

How long this rebound lasts will depend on whether consumers buy into the stabilisation measures, Shen said. “If the rules are not sufficiently executed, a structural improvement in housing demand is unlikely.”