Real Estate

Time to Invest in Shanghai Real Estate?

Shanghai real estate market had a strong growth in 2007, and the Chinese government implemented the land appreciation tax and imposed additional restrictions on foreign investment in the sector. Just when it looked like the boom would go on forever, the average housing price in 70 cities suffered consecutive monthly decline during the second half of 2008, and for some cities, year 2008 was the worst in the past ten years.  To combate the impact of


the global fianncial crisis and to boost the real estate sector, the government implemented policies in late 2008 to give broader tax breaks for home buyers and to lower down payment requirements from 30% to 20%.  Although property price remain down, it starts to stabilize.  On the national level, the first positive sign is shown in March, and according to the statistics bureau,  the average housing price has inched up by 0.2% from February, though the price index shows a drop of 1.3% over the same period of 2008.  Encouraging news came from Vanke as well, which reports its first quarter 2009 sales of 12.22 billion yuan, or US$1.79 billion, an increase of more than 20%.  China Vanke Corp is the largest publicly listed developer in China.  

Although Shanghai’s real estate market is generally considered to be a better performer in keeping its pricing during the downtime, Shanghai property sales had experienced a significant dip during the second half of 2008.  Shanghai, however, began to show signs of improvement and seemed to lead to stablization in the sector at the end of 2008 and the beginning of 2009.  Although with declining prices from the peak, it has shown an impressive rebound in March, with the new homes sales nearly doubling from the previous month and the existing homes sales reaching a two year high. If we can call them signs of an early recovery in the property sector, they are encouraging as real estate is key to revival of the world's third largest economy.  Shanghai, China’s largest city and the eighth largest city in the world, is in particular, the source of consumer confidence.  A decline in Shanghai represents major instability in the national and global markets.  The government’s 4 trillion yuan, or $585 billion, stimulus plan will help mobilize private-sector investment in sectors such as real estate, although it relies mostly on government-led infrastructure investment. Given the high housing inventory level in most cities, a rebound in trading volume by no means means a price catch up.  Time will be needed for adjustment for the real estate industry.

Regardless of the current economic slowdown, on April 21, the Shanghai banking regulator reinforced the second home requirement rule, reiterating that buyers must put at least a 40% down payment for purchasing a second home. Under the current policies, foreigners are entitled to one property if they have worked and lived in Shanghai for at least a year. Besides the residency requirement, they must purchase property only for their own use and can not lease it to others.  Shanghai property transaction centers can make up own rules on trading on the basis of these policies, according to Shanghai Municipal Housing, Land and Resource Administration Bureau, and rules and implementation time could vary by district. Overseas institutions and individuals that have set up a company in China may purchase property for purposes other than their own use.