As a seasoned professional in this industry, here is my view.
1. The quality of Shanghai property construction is very poor. Cracks are in buildings and new concrete villas long before they are completely finished.
2. Traffic and human congestion in Shanghai is far too high. The city should have half the population for the current infrastructure.
3. Shanghai real estate is still much cheaper than Hong Kong. But Shanghai is not Hong Kong, it is far far worse...sorry, Hong Kong is a great great city, but Shanghai is nothing compared to it (this is from 18 months on the ground here).
4. The Shanghai real estate industry seems to be morphed by a great number of sometimes obscure factors.
1. Heriditary links
2. Government links
3. Other provincial links such as the rather famous Wenzhou
investors, who own apartments in just about every complex I
have ever visited in Shanghai.
5. Shanghai real estate capital growth may account for a whopping big amount of Shanghai's GDP growth claim.
6. All developers or speculators in Shanghai real estate seem to do is buy super luxury cars. Therefore investment cash is getting poored back into rather useless non-returning asset classes, instead of say, upgrading systems in other parts of the economy or at least providing higher quality real estate properties. Plus, these cars further clog the roads and add pollution to the city...adding to the feedback loop which will ultimately cave Shanghai in.
7. Many speculators tend to live in run-down residential complexes, conglomerations of little chicken cages, barely big enough to walk around in, let alone feel any of the Shanghai grandeur. You can tell they live there because of the number of late model cars, more than half of them luxury, and at least a few top of the range BMW's, that are parked outside these places. The only way for a local person to afford a late model car, is that they have speculated on real estate...since it is unlikely any wages they might get will be above 5000RMB or around 600USD a month. The fact that the people who speculate on real estate, actually live in run-down places, is testiment to the fact that they don't have any faith in the new real estate establishments they have been selling. This means, basically, that Shanghai real estate is a complete farce.
8. There are probably a million people in Shanghai, who, in the last 3-4 years have seen the value of their properties double (and many are not speculators...just people living in their homes). They have done no extra work for this money, should they sell for the current 'market' price. Now, there are still quite a few people who have been paying the over inflated prices of late. IF the market appears to be going down, what will people want to do? They will want to sell. But obviously, those people who saw a capital gain of 100% after 3 or 4 years, have got MUCH FARTHER to move DOWN than their counterparts who have recently purchased. It is thus possible, that these people could reduce the asking price of their property by up to 50% and still make money!
Conclusion:
Shanghai real estate is highly overvalued for the current state of the city. The government cannot afford a complete Shanghai market crash. China is a controlled economy, under a central leadership, and therefore it is probable that, however it is achieved, Shanghai will avoid a complete market crash.
Shanghai real estate will cool down considerably within the next two years, in time for a resurgence around the 2008 Beijing Olympics...that's my bet.
I strongly recommend looking to other areas in China for real estate investment purposes. Currently, Zhuhai, in Southern China is looking seriously undervalued. Next to Macau, 1hr by boat to Hong Kong and Shenzhen. A new bridge link direct from Hong Kong is planned for completion by 2010, plus a freight railway is being built from Guangzhou to Zhuhai. Zhuhai is one of the few Special Economic Zones (SEZ's), has a population of only just over 1 million, has clean air, is by the sea with swimming beaches and has green hills. All of this, and it is still half the price per square meter of Shanghai!
More discussion on Shanghai real estate can be found here: http://www.greenmonkey.com.cn/gmforum/viewtopic.php?t=12
1. The quality of Shanghai property construction is very poor. Cracks are in buildings and new concrete villas long before they are completely finished.
2. Traffic and human congestion in Shanghai is far too high. The city should have half the population for the current infrastructure.
3. Shanghai real estate is still much cheaper than Hong Kong. But Shanghai is not Hong Kong, it is far far worse...sorry, Hong Kong is a great great city, but Shanghai is nothing compared to it (this is from 18 months on the ground here).
4. The Shanghai real estate industry seems to be morphed by a great number of sometimes obscure factors.
1. Heriditary links
2. Government links
3. Other provincial links such as the rather famous Wenzhou
investors, who own apartments in just about every complex I
have ever visited in Shanghai.
5. Shanghai real estate capital growth may account for a whopping big amount of Shanghai's GDP growth claim.
6. All developers or speculators in Shanghai real estate seem to do is buy super luxury cars. Therefore investment cash is getting poored back into rather useless non-returning asset classes, instead of say, upgrading systems in other parts of the economy or at least providing higher quality real estate properties. Plus, these cars further clog the roads and add pollution to the city...adding to the feedback loop which will ultimately cave Shanghai in.
7. Many speculators tend to live in run-down residential complexes, conglomerations of little chicken cages, barely big enough to walk around in, let alone feel any of the Shanghai grandeur. You can tell they live there because of the number of late model cars, more than half of them luxury, and at least a few top of the range BMW's, that are parked outside these places. The only way for a local person to afford a late model car, is that they have speculated on real estate...since it is unlikely any wages they might get will be above 5000RMB or around 600USD a month. The fact that the people who speculate on real estate, actually live in run-down places, is testiment to the fact that they don't have any faith in the new real estate establishments they have been selling. This means, basically, that Shanghai real estate is a complete farce.
8. There are probably a million people in Shanghai, who, in the last 3-4 years have seen the value of their properties double (and many are not speculators...just people living in their homes). They have done no extra work for this money, should they sell for the current 'market' price. Now, there are still quite a few people who have been paying the over inflated prices of late. IF the market appears to be going down, what will people want to do? They will want to sell. But obviously, those people who saw a capital gain of 100% after 3 or 4 years, have got MUCH FARTHER to move DOWN than their counterparts who have recently purchased. It is thus possible, that these people could reduce the asking price of their property by up to 50% and still make money!
Conclusion:
Shanghai real estate is highly overvalued for the current state of the city. The government cannot afford a complete Shanghai market crash. China is a controlled economy, under a central leadership, and therefore it is probable that, however it is achieved, Shanghai will avoid a complete market crash.
Shanghai real estate will cool down considerably within the next two years, in time for a resurgence around the 2008 Beijing Olympics...that's my bet.
I strongly recommend looking to other areas in China for real estate investment purposes. Currently, Zhuhai, in Southern China is looking seriously undervalued. Next to Macau, 1hr by boat to Hong Kong and Shenzhen. A new bridge link direct from Hong Kong is planned for completion by 2010, plus a freight railway is being built from Guangzhou to Zhuhai. Zhuhai is one of the few Special Economic Zones (SEZ's), has a population of only just over 1 million, has clean air, is by the sea with swimming beaches and has green hills. All of this, and it is still half the price per square meter of Shanghai!
More discussion on Shanghai real estate can be found here: http://www.greenmonkey.com.cn/gmforum/viewtopic.php?t=12
) of the procedure for buying property in China, and for a full chart of all taxes and fees related to buying and selling residential property, for individuals and for institutions, give me an email: simon at greenmonkey dot com dot cn
