Shanghai’s property market remains robust thanks to influx of talent, says Savills

Although land prices are skyrocketing in China’s first tier cities, Albert Lau, chief executive of global property consultant Savills China, said the future of Shanghai’s property market is promising because the city’s fast development will attract more talent.

“Shanghai’s ambition to develop into a global financial, maritime and technology innovation centre means it needs to absorb a large number of talented people,” said Lau.

The resident population of the largest metropolis in eastern China has grown rapidly in the last two decades, from 13 millionin 1995 to 24 million people in 2015. By population, Shanghai is currently the second largest city in China, only behind Chongqing.

Lau said the population inflow is set to continue and that will boost future demand for housing.

Meanwhile, he said rapid home price growth and a robust rental market show that the city’s housing market is still “in short supply”. According to Savills, the occupancy rate of available apartments in the city is nearly 100 per cent. Official data shows Shanghai’s new home prices surged more than 30 per cent year on year in July.

Land prices in Shanghai also hit new highs in the past few months as developers scrambled for prime plots in the city. In mid-August, a residential plot in central Jingan district sold to a developer for 100,000 yuan per square meter, the most expensive land ever in China in terms of average floor price.

Some are worried such investments are too risky as the land cost is even more expensive than existing apartments in the same area, but Lau doesn’t think so.

“The floor price is not a reflection of today’s market value, developers are betting on the future,” he said. “They can develop the projects by phases, taking three, four years or even longer, to digest the cost.”

Lau added that quality land parcels in Shanghai are becoming fewer and fewer. Developers have no choice but to pay top dollar to secure land first in order to keep their business running.

Still, developers need to make accurate judgments on future economic trends and policy changes to manage the risks, he said.

Lau expects Shanghai to see mild home price growth in the second half as authorities are not likely to introduce a new round of policy tightening in China’s big cities.

“The [cooling] measures took effect already because you can see transaction volume has obviously declined since March,” he said.

The Shanghai government launched a new set of curbs in March, including raising the minimum down payment requirement for second homes to 70 per cent. Non-local residents are not eligible to buy a flat in Shanghai unless they have been employed by local firms for over five years.

Having witnessed China’s property market for more than 18 years, Lau said any government policy tightening wouldn’t drag down property market growth in the long term. “Prices still go up in the end,” he said.