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SCMP Reporter

Limited supply and steady inflow of expatriate staff underpin high-end rental market

A steady inflow of expatriates and limited fresh supply due to land policies will underpin continued strong demand for Shanghai's upmarket villas, analysts say.

The latest data from property consultants shows Shanghai's villa residential market has taken in  stride various control measures introduced since 2005 to cool the mainland's overheated property market.

The average monthly rent fetched by villas reached US$21.50 per square metre in the first half of the year, up 6.5 per cent from the same period last year, according to statistics from Colliers International.

The overall vacancy rate was 10.6 per cent,  compared with 15.9 per cent last year. In the villa district of Changning, the vacancy rate was unchanged, while in Minhang, vacancies fell 12 percentage points to 6.7 per cent.

And although 13.6 per cent of Pudong district's luxury villas remained vacant,  the vacancy rate was down 6.9 percentage points from  the same period last year, the figures showed.

The gradual opening  of the mainland financial sector and growing domestic  consumer demand had lured foreign banks and retail giants to expand aggressively in the mainland, analysts said.

Official data showed that by the end of April, Shanghai was home to 57,000 registered expatriates - 11.8 per cent up from the previous year.

Larry Hu, head of residential consultancy at Knight Frank Shanghai, said he was optimistic about the outlook for the villa market.

'A quarter of the expatriates living in Shanghai rent luxury homes with monthly rents  ranging from US$3,000 to US$10,000,' said Mr Hu, who added that expatriates accounted for more than 90 per cent of the total luxury residential leasing market in Shanghai.

Meanwhile, in a move to cap the supply of upmarket villas, the Ministry of Land and Resources and the National Development and Reform Commission jointly reiterated this month a policy to end new land approvals for villa developments.

Lina Wong, managing director for East China at Colliers International, said the measures would boost the villa market.

'The rising number of expatriates and the future limited new supply will help the outlook for the villa leasing market,' she said.

Colliers International expects average villa rentals to rise  another 3 per cent to 4 per cent in the second half. It also estimates that  351 villas will be launched this year, of which 88  were launched in the first half.

Compared with the stable growth of the villa market, two other pillars of the luxury residential leasing market - serviced apartments and high-end non-serviced apartments - showed mixed results.

The average rent for serviced apartments  was up just 1 per cent year on year at the halfway mark this year, at US$33 per square metre, and vacancies edged higher for non-serviced apartments - from 16.7 per cent to 17.8 per cent.

Colliers International expects  new supply of luxury residential units in Shanghai to reach 3,303 this year with serviced and non-serviced apartments accounting for 89 per cent and villas the balance.

Knight Frank Shanghai estimates many projects will be delayed and  about 1,500 apartments will be launched between the fourth quarter and  the first half of next year.

In the first half of this year, developers brought 849 new apartments  to the market.

But Ms Wong of Colliers International said demand was sufficient to soak up the new supply in the pipeline.  'The supply is mainly from non-serviced apartments, so we forecast that the vacancy rate will go up and rents  will drop slightly as a result in the second half. But serviced apartments and villas will maintain the upbeat trend,' she said.

Meanwhile, the number of expatriates who bought  property rather than rent in Shanghai  represented only a small proportion of the expatriate population, said Mr Hu.'The actual number of expats wanting to buy or having bought property is not very big,' he said.

Shanghai's luxury apartments, whose users were mainly single executives or couples, were usually located in the city's central business district, while villas catered for residents with children, Mr Hu added.

The Gubei area in Changning district is the traditional villa hub for expatriates. However, due to  limited land for further development, new tenants have been migrating to the less developed Minhang district.

Residents were not concerned that villas came without private pools as Shanghai's weather did not allow much time for swimming outdoors,  and pools were also regarded by parents as a potential danger  to their children, said Mr Hu.

Instead, expatriate tenants were attracted by the proximity of international schools for their children,  he said.

Rancho Santa Fe and Stratford, two villa developments for which leasing  rights were  granted recently to Knight Frank by developer China Vanke, are located in Minhang district and near international schools.

More than 90 per cent of Rancho Santa Fe's tenants are expatriates from the Fortune 500 list of American and European firms and its  average monthly rent  is  US$18 to US$20 per square metre.



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