Shanghai became the most attractive real estate market in Asia in 2016

Shanghai replaced Tokyo as the first destination for real estate investment in Asia in the fourth quarter of 2016, according to statistics from JLL, a professional investment management firm specializing in real estate services.

Globally, Shanghai was last year the fifth destination of property investment, after New York, London, Los Angeles and Paris.

According to JLL, the strong performance of Shanghai real estate market was pulled up by strong transactions, such as the $ 2.91 billion investment by ARA Asset Management in the Century Link complex last October. It was the largest real estate transaction in a single location in the Asia-Pacific region in 2016.

In the real estate sales sector, the largest transaction in 2016 was the $ 825 million purchase by Chongbang Real Estate Development of 80% stake in Jinqiao Life Hub in Shanghai.

“Chinese capital was the main driver of real estate volumes in 2016, with domestic investors often outnumbering foreign investors. We believe that China, especially in first-tier cities, remains attractive to foreign investors as the market matures, “said Zhou Zhifeng, China’s director of research at JLL.

According to JLL data, the total volume of real estate transactions in the Asia-Pacific region in the fourth quarter increased 21% year-on-year and 5% year-on-year. The total volume of real estate transactions in the fourth quarter was $ 15.5 billion in China, exceeding $ 7.4 billion in South Korea and $ 7.2 billion in Japan.

Shanghai's famous Nanjing Road

Will Shanghai real estate be as expensive as London and Paris?

For the past five years, Shanghai apartment prices have been soaring. Between November 2015 and November 2016, prices rose in 12 major cities in the country to 12.6%, according to the National Bureau of Statistics. And in some cities, this figure can be multiplied by two. In Beijing, the increase was 26.4% in 12 months, in Shanghai it was 29%, and in Shenzhen 27.9%. In the center of Shanghai, apartments easily exceeds 100,000 yuan per square meter, about 13,600 euros. In comparison, according to figures published by the NBS last November, a house or flat in London costs approximately 10,500 euros per square meter (15,000 in the upper-class districts of Kensington and Chelsea), when Paris runs around 8 500 euros per square meter. In the end, property prices in Shanghai exceed those of the most expensive borough of the French capital, the 6th district with an average price per square meter of 12,000 euros.

The gap is widening

However, if real estate prices can be similar to these European cities and Shanghai, the average monthly income remains well below those in the UK or France: 8,664 yuan, roughly 1,150 euros. The surge in prices is, therefore, a major concern not only for the population but also for economists.

The gap between rural and urban areas is widening. More and more employees working in large cities have to move out of the city to afford a home. Real estate prices are only amplifying wealth gaps. According to Li Shi, a professor of economics at the Normal University of Beijing, this gap has multiplied by four during the last decade due to the fast growth of the property sector.

China has come to this point because of the government’s policy of transferring ownership of apartments held by labour units to tenants in the late 1990s at very low prices. A wave of urban residents thus became owners, leading to a gradual increase in prices, while in the countryside local governments still own most of the lands.

Find more information about Shanghai real estate here.

There have been a lot of concerns about the Chinese debt which is mostly the consequence of a real estate crisis. The real estate industry is largely responsible for the financial crisis that has hit the financial sector in summer 2015 in China.

Here is an interesting analysis from McKinsey about what are experts call the “Chinese real estate bubble” in most tier-1 and -2 cities. 80% of these cities have experienced a continuous increase in housing prices for at least five years. East and Southern China are the regions where prices have reached the highest level. According to a recent report from McKinsey, prices should keep rising for the coming year.

Impressive construction site in Tianjin, northern China
Impressive construction site in Tianjin, northern China

The recovery of the housing sector is still ongoing in China but at a slower pace in June, with fewer cities showing an increase in new home prices compared with the previous month, according to figures released on Monday by the National Bureau of Statistics.

Out of the 70 medium and large cities, 55 recorded a rise in new home prices last month, compare to 60 in May, said the NBS. In addition, 10 cities showed a decline in prices, against 4 in May.

New home prices surged 48.4% year on year in the southern city of Shenzhen last month, the most significant increase among all major cities but lower than the 54% rise recorded in May. Shanghai, Beijing and Guangzhou home prices are respectively up 33.8%, 22.4% and 19.5% year on year. Jinzhou, a second-tier city located in northeastern China, experienced the largest decrease year on year with 3.5%.

Regarding the existing homes, prices rose in 48 cities fell in 14 cities in June compare to the previous month, against 49 and 13 in May.

After over a year of price cooling, the Chinese real estate market began to recover in the second half of 2015, thanks to government support measures, including a decrease in the interest rate and the deposit.

However, cities are not equal before the recovery: in developed regions, the rise in prices was very noticeable while a considerable amount of properties are still unsold in less developed areas. This contrast has prompted local authorities to use different methods: Shenzhen and Shanghai have stepped up measures to curb speculation and contain the risks of bubbles, while smaller cities are exploring new ways to boost house sales.

A super luxury hotel opened its door last week on the Bund, the renowned European-style waterfront in Shanghai. Wanda Reign is the first seven stars hotel to open in China and one of the few of its kind in the world.

Wanda Reign bar offering a great view on Shanghai financial center Lujiazui
Wanda Reign lounge bar offers a great view on Shanghai financial center Lujiazui

The owner is none other than Wang Sicong, son of the real estate tycoon and China’s wealthiest man Wang Jianlin, founder of Dalian Wanda Group, the biggest real estate company in China.

The hotel looks like an art and antique museum due to the numerous unique pieces created by contemporary Chinese artists. The staff outfits have been designed by Laurence Xu, the first Chinese designer to integrate Paris Fashion Week.

Each of the 193 rooms features an iPad, and the decoration is very much inspired by an Art Deco aesthetic offering a choice of two styles: modern glamour beige and dark mahogany brown with Magnolia patterns. Besides, bathrooms come with Hermes and L’Occitane items.

For the wealthiest, we recommend the 288sqm Chairman suite which comprises a lounge, a dining room, a cellar, a bar, an office, a huge bedroom, a sauna and a Jacuzzi.

To top it all, the rooftop terrace features a restaurant led by the French chef Marc Meneau. For those seeking more local flavours, Wanda Reign also boasts a traditional Chinese and a Japanese restaurants.

To celebrate the launch of the hotel, some rooms are currently available at $453 per night.

wanda-reign-hotel-shanghai

Brexit to increase foreign real estate investment in UK

On Thursday 23 June, many Britons voted for Brexit to protect their economy from non-British investors. The fall of the pound following the referendum, however, appears as a great opportunity for many foreign investors.

The decision of the British to leave the EU last week has triggered a political and financial earthquake with the resignation of Prime Minister David Cameron and the collapse of the stock market after the pound sterling lost 8.8% against the US dollar.

Many analysts predict a decline in property prices while potential buyers postpone transactions due to the general uncertainty of stock market. For foreign investors, however, it seems to be the right time to find some great deals.

“Anyone who does not use the pound will see an opportunity” said N. Brooke, chairman of Professional Property Services, a consulting firm specialized I real estate investment based in Shanghai.

asian property buyer

Interest from China, Hong Kong and Singapore

Former President of the Royal Institution of Chartered Surveyors, a British organization that promotes the real estate industry, Brooke said that some of its wealthy customers from Hong Kong and China are already seeking new investment opportunities in the UK.

For international real estate company Knight Frank, even if it is too early to assess the impact of the British referendum, the drop of the pound will definitely lead to a significant gain in purchasing power of foreign investors.

People from China, Hong Kong and Singapore already have a solid experience in real estate investments in UK, particularly in London. The Chinese international property portal Juwai.com expects a 30% increase in queries for properties in UK in June compared to May.

Property prices in London are among the highest in the world. With the referendum, the residential market should fall by 5% across the UK, and even in London, according to KPMG consulting group.