Shanghai home sales hit two year high

Home sales in Shanghai, China, rose to the highest level for two years in the first three months of the year, new data shows.

But the residential sector is expected to decline in the short term as leadership property cooling measures, including the reimplementation of 20% Capital Gains Tax take effect.

“Despite the government attempts to dampen demand in the residential market, a significant number of developers remain confident in the mid-term prospects of the market, given the robust end user demand,” says the first quarter overview from agent Savills China.

However, the outlook across the property market in the mid-term is better, the report concludes.
“China still remains one of the fastest growing economies in the world, albeit at a slower pace than in recent years. Shanghai, as its leading business centre, continues to attract interest from both domestic and international tenants, developers and investors.

“The short term outlook remains relatively neutral with manageable levels of supply, moderate levels of demand and modest rental and capital value growth. In the mid-term, however, Shanghai will be prone, as many other Chinese cities are, to oversupply – especially in decentralised areas.

“Investors will become more selective on investment targets given the looming supply in decentralised and the potential impact it will have on the market, with prime properties still highly sought after, followed by key established decentralised hubs.

New home sales in the first quarter of 2013 were buoyant, up 119% year-on-year to 3.1 million square metres, says the report.

In total, 3.1 million square metres of residential property gross floor area were sold in Shanghai's primary housing market in the first quarter, up 1.1% on the previous quarter.

Prices of new homes rebounded to an average of 23,300 yuan per square metre in the first quarter after a fall in values in the second half of 2012.

Apartment transaction volume fell 5.1% quarter-on-quarter, to 218,000 square metres. Only one high-end apartment project was launched from January to March, adding 510 units into the market.

High-end apartments were up 0.95%, ending the quarter at 64,000 renminbi (RMB) per square metre.

There were 95 villas over RMB40, 000 per square metre totalled 95 units sold, the same as in the last quarter.

The land market was very quiet and the total transacted area fell by 61% quarter-on-quarter to 1.1 million square metres (buildable area), 567,000 square metres (site area).

Average accommodation value fell 22.3% during the three months to RMB6, 500 per square metre, while premium rate recorded 30.4%, up from 23.1% in Q4/2012. The highest premium recorded was 65.9% over the reserve for a plot in Qingpu district.

Shanghai grade ‘A’ office market vacancy rate fell 0.9% to 6.1%, as demand focused on absorbing existing stock. Rents rose 1.3% quarter on quarter to an average of RMB8.44 per square metre per day, registering slower growth, likely on account of the Chinese New Year holiday season.

“While China’s economic growth is still positioned to outpace much of the world, and remains the world’s fastest growing large economy, many firms are expected to follow through on their previous expansion plans, albeit with increased caution,” says the report.

City-wide vacancy rates are forecast to remain below 10% over the next 12 months, subsequently leading rents to appreciate, if only slightly.

“Our rental forecast for 2013 is presently at 6%, with rental growth slowing towards the end of the year, as vacancy rates rise with the addition of new supply.”

In the retail market, two new shopping malls were launched in the first quarter, adding a total of 84,500 square metres to the market.

Residential rents in Shanghai increased 0.8% to an average of RMB179.1 per square metre per month, up 3.0% year-on-year.

Serviced apartment occupancy rates increased during the three months as a number of serviced apartments offered promotions for short-term leases over the Chinese New year holidays and through to the end of February.

Villa rents stood at an average of RMB157.3 per square metre per month, up 3.7% year-on-year.
China’s central government recently announced that local authorities should implement a Capital Gains Tax of up to 20%, as opposed to the 1-2% tax currently in place.

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