China property

With robust demand, Shanghai’s property cooling measures are unlikely to last

Analysts say the measures have dampened recent transactions but the demand for flats in the city remain strong and is only a matter of time when they are phased out

PUBLISHED : Tuesday, 08 August, 2017, 12:01pm
UPDATED : Tuesday, 08 August, 2017, 7:40pm

In Shanghai, any amount of austerity measures to cool the Shanghai home market will likely be short-lived as there’s one factor they can’t beat — the robust and sustainable housing demand.

Authorities in the mainland’s commercial capital has rolled out a series of stringent measures from home purchase restrictions and heightened mortgage down payments to price interventions since early 2016. But the local real estate market looks set to veer off course owing to soaring demand from first-time homebuyers and wealthy residents planning to upgrade to a bigger flat.

“In Shanghai, demand for homes is always strong,” said Luo Ruzhao, a vice president at Wenzhou Yijiayi Real Estate Agency.

“The recent drop in transactions was just a result of the tightened policies.”

The recent drop in transactions was just a result of the tightened policies
Luo Ruzhao, Wenzhou Yijiayi Real Estate Agency

A total of 28,442 newly-built homes, most of which are located in the suburban areas, were sold in Shanghai during the first half of this year, down 40.4 per cent from the same period in 2016, according to real estate agency Homelink, also known as Lianjia.

Transactions of the city’s pre-owned residential flats in the first six months fell 55 per cent from a year earlier.

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But the weaker sales that resulted from the administrative policies, rather than sluggish demand, had left millions of would-be buyers unable to see through the transactions of their planned purchases.

This was because the local government in May ordered all developers to conduct lottery draws supervised by the notary office to ensure fairness and transparency in the sales process of new flats.

“You can say I’m a lucky winner of the lottery system, but I’ve also saved so much for so long to be able to buy my own home,” said Lancy Zhou, buyer of a 120 square metre apartment in Pudong.

“Home prices will definitely jump sharply when the temporary price control measures are lifted in future because I saw hundreds of disappointed buyers who failed in the lottery draw.”

Over the past year, nearly all residential projects of newly-built flats in Shanghai that were marketed drew more customers than the number of units available for sale.

According to developers, the authorities have also set a monthly quota for the sales of new homes hitting the market, while setting a cap on prices as a way of reining the city’s red-hot property sector.

The government has not announced when the administrative measures – designed to keep a tab on housing price growth – would be phased out.

“They can be just makeshift policies,” said Lina Wong, a senior managing director of Colliers International. “We expect home prices to climb in a torrid pace when the administrative measures are removed in future.”

Every three to four years over the last nearly two decades, the central and local governments have stepped in to curb rising home prices, but their efforts have so far been futile.