Expats put a shine on Shanghai real estate
The city's luxury serviced apartment sector is growing rapidly as multinationals bring in senior executives in increasing numbers
The prospects look good for those investing in Shanghai's luxury serviced apartments, even though government measures to check property growth have taken some of the glitter off the city's real estate market.
Multinationals are pushing up the demand for accommodation by bringing in senior expatriates in increasing numbers as the China market opens up under the World Trade Organisation accession agreement.
'With banking deregulation at the end of this year, foreign banks are gearing up to bring in more senior expatriates for expansion,' said Michael Hart, Greater China research head for Jones Lang LaSalle (JLL).
'What this means is a greater demand for serviced apartment space.'
Mr Hart expected serviced apartments to grow this year along with office market investment in Shanghai.
Shanghai's expatriate population has been growing rapidly in recent years. According to CB Richard Ellis (CBRE), the number of expats staying for periods extending beyond one year was expected to exceed 100,000 by the end of last year, up from 90,409 in 2004 and 72,895 in 2003.
According to JLL, the city has 15 luxury serviced apartment properties, with a total of 2,700 units, each more than 150 square metres in size. There are also 25 high-end serviced apartment properties, with a total of 4,300 units, each of more than 120 square metres.
Average monthly rents for luxury serviced homes went up 15.7 per cent year on year last year, and now stand at US$32.7 per square metre, JLL said.
High-end serviced apartment rents saw 7.3 per cent growth last year, and now stand at US$19.30 per square metre a month.
The average occupancy rate of serviced apartments stood at 85 per cent to 90 per cent, according to CBRE.
The booming sector has been attracting foreign property investors since last year.
Big deals included Macquarie Bank's purchase of the 26-storey City Apartments for about US$50 million in September. Built in 2000, the property comprises 90 apartments, all leased to multinationals, including IBM and General Motors.
Last month, ING Real Estate sold Somerset Grand Shanghai, a 328-unit serviced apartment complex in Lu Wan district, to Hong Kong-based Concord Land for more than US$100 million.
Regional developer WingTai Asia, which jointly owns the 106-room Lanson Place Jinlin Tiandi with Morgan Stanley, said it was interested in expanding in the serviced apartment sector in the light of strong signs of growth.
'The need for high quality accommodation for expatriates is strong,' said Karen Li Kan Fung-ling, corporate development director at WingTai Asia.
'About 39 per cent of our rooms have already been given out on one-year corporate leases, even though we are still on a trial run.'
The rooms, ranging from 180 square metres to 220 square metres, are renting for between US$6,000 and US$8,000 a month. The development is scheduled to open by the end of next month.
Andrew Ness, CBRE executive director of research, expected another 6 per cent to 8 per cent rental growth in the sector this year with deregulation opening up China's financial world.
'However, the supply of leasing properties is likely to be influenced by government measures to curb speculation. Under the stagnant sales circumstances, some developers are planning to launch part of their projects into the leasing market,' Mr Ness said. 'The market will probably face take-up pressure in the short term.'
About 700 new serviced homes are expected to enter the market this year. These include the Ascott Group's Citadines, Kerry Properties' Central Residences Phase II, HKR International's Chelsea Phase II and Hung Lung Properties' Grand Gateway Phase II in Xuhui district.
Meanwhile, Shanghai's residential market has been slowing down. Residential property prices rose 9.2 per cent last year, down from 15.8 per cent in 2004.
Kitty Tan, associate director of Savills' research and development consultancy, expected some developers to shift their focus to office properties. 'It isn't easy to run a serviced apartment,' she said.
Sunny Chau, general manager, Kerry Properties Development Management (Shanghai), said that the main competition for the serviced apartment market would be from the low-density housing market, such as detached houses or town houses.