Savills World Research Shanghai Briefing Residential sales November 2015 Image: The Palace II, Xuhui SUMMARY Looser monetary policies and improving sentiment are bringing end-users and investors back to the market, spurring residential sales volumes to new heights and pushing up prices. New commodity residential supply High-end apartment transaction increased 24.2% quarter-on-quarter volumes totalled 335,400 sq m, down “Developers took advantage of (QoQ) to 3.6 million sq m in Q3/2015. 15.5% QoQ, though still close to the all-time high. the surge in sales and prices First-hand commodity residential transaction volumes totalled 4.0 First-hand high-end apartment to release additional supply million sq m in Q3/2015, down 3.3% transaction prices increased 0.8% in over the September/October QoQ. Q3/2015, to an average of RMB71,700 per sq m. sales period. Additional sales Average transaction prices stayed Ten residential (including pure at the high-end of the market firm, with only a 0.3% QoQ decrease residential and mixed-use) land plots to RMB32,000 per sq m. were transacted in Q3/2015, totalling were largely driven by the 1.3 million sq m of buildable area, up One new high-end apartment 20.7% QoQ. addition of more affordably project, The E18 by Wharf Holdings in Pudong, was launched in the third Buoyant demand is expected to priced properties in secondary quarter, adding 145 new units (34,900 continue through to the fourth quarter areas.” James Macdonald, Savills sq m) to the sales market. of 2015. Research savills.com.cn/research 01 Briefing |Shanghai residential sales November 2015 Policy and is not expected to lower it, given that the minimum down payment PBoC continues to lower interest the local government’s stance on for first-time homebuyers was cut rates controlling price increases. from 30% to 25%. The reduction The People’s Bank of China (PBoC) applies to those receiving loans from announced further interest rate cuts China cuts minimum down commercial banks for the purchase on 26 August and 24 October, as payment for first-time homebuyers of properties in cities that no longer the government looks to reassure PBoC and the China Banking have Housing Purchase Restrictions markets and shore up the economy. Regulatory Commission (CBRC) (HPR), namely all cities apart from the The one-year lending rate was announced on 30 September, 2015, four first-tier cities and Sanya. lowered to 4.35%, while the five-year lending rate was cut to 4.9%, both GRAPH 1 historical lows. Base lending rate > 5 yr 1-5 yr < 1 yr 8.0% The cumulative decreases in interest 7.5% rates, coinciding with the reduction 7.0% of Bank Reserve Requirement Ratio 6.5% (RRR), have made more financing available to home purchasers, 6.0% especially low-income households, 5.5% and had a positive impact on 5.0% developers’ liquidity as well as 4.5% funding costs. 4.0% Second mortgage down payment under HPF lowered to 20% Source: People's Bank of China, Savills Research In August 2015, the Ministry GRAPH 2 of Housing and Urban-Rural Shanghai mortgage volumes and residential sales Development (MOHURD), Ministry values of Finance (MOF) and PBoC jointly Housing loans increase Sales values announced a lowering of the 24 160 minimum down payment from 30% 21 140 to 20% for second-home purchases 18 120 using the Housing Provident Fund 15 100 (HPF). The policy applies to those RMB billion 12 80 who have already paid down 9 60 their first-home mortgage in full. RMB billion 6 40 The policy went into effect on 1 September 2015; however, the four 3 20 first-tier cities are allowed to decide 0 0 whether or not to follow this policy -3 -20 or to set their own limits. Shanghai has kept the requirement at 30% Source: Shanghai Real Estate Transaction Centre, Savills Research TABLE 1 First-hand commodity residential market by property type, Q3/2015 Supply Transactions Average price sq m QoQ (%) sq m QoQ (%) RMB per sq m QoQ (%) Apartment 3,198,600 +24.7 3,516,100 -3.2 31,600 +0.5 Villa 374,700 +20.0 491,200 -3.7 34,500 -4.9 Overall 3,573,300 +24.2 4,007,300 -3.3 32,000 -0.3 Source: Shanghai Real Estate Transaction Centre, National Bureau of Statistics, Savills Research 02 Briefing |Shanghai residential sales November 2015 Loosening of the one child policy the further lower mortgage rates Benefitting from seasonal factors On 29 October, 2015, the which led to new housing loans in and continued monetary loosening, government announced that it would Q3/2015 hitting the highest monthly first-hand commodity residential loosen the one child policy in order record for the last five years. transaction volumes totalled 4.0 to allow all parents to have up to two children. The one child policy Buoyant sales volumes have GRAPH 3 was introduced in the late 1970s and heartened downbeat developers, First-hand commodity residential limited most urban couples to one giving them hope that they will reach market supply, transactions and child and most rural couples to two or even exceed their annual sales prices, Q1/2006–Q3/2015 children, if the first child born was a targets. At the recent Shanghai Supply (LHS) Transaction volume (LHS) Average transaction price (RHS) 7 35,000 girl. In recent years, the policy had Property Exhibition held over the been relaxed to first let parents have National Day holidays, potential 6 30,000 a second child if they were both an homebuyers showed the same high 5 25,000 RMB per sq m only child, and then in 2013, couples enthusiasm, despite fewer discounts 4 20,000 were allowed to have two children if on offer. A number of developers either parent was an only child. have also launched new batches of 3 15,000 million sq m units at notably higher pricing than 2 10,000 While believed to be a positive for the earlier batches. 1 5,000 property market as parents look to 0 0 buy bigger homes to accommodate A combination of factors, including Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 their larger families, the relaxation of the stabilisation of prices and a Source: Shanghai Real Estate Transaction Centre, Savills Research the one child policy is expected to structural shift in transaction make- have only a muted impact and one up, resulted in first-hand commodity GRAPH 4 that may not be realised immediately. residential transaction prices First-hand commodity residential Parents have to weigh the financial falling 0.3% QoQ to an average of transaction prices (3MMA), Jan 2006– cost of having a second child, while RMB32,000 per sq m in the third Sep 2015 Inside Inner Ring Rd. Between Inner and Middle Ring Rd. many couples were already eligible quarter, although this was still close Between Middle and Outer Ring Rd. Between Outer and Suburban Ring Rd. Outside Suburban Ring Rd. to have a second child under the to all-time highs. 80,000 previous changes. 70,000 1 60,000 Overall commodity Market overview residential market 50,000 Benefitting from seasonal factors As developers accelerated the 40,000 RMB per sq m and monetary loosening, Shanghai’s launch of new products during the 30,000 residential sales market maintained traditionally peak season, September 20,000 robust demand in the third quarter, saw supply reach 1.8 million sq m, 10,000 0 despite falling 3.3% from Q2/2015, the highest monthly figure since Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 a five-year transaction volume high. 2007. As a result, new commodity Source: Shanghai Real Estate Transaction Centre, Savills Research Transaction volumes in the first three residential supply for Q3/2015 was quarters of 2015 stood at 10.1 million up 24.2% QoQ to 3.6 million sq m. GRAPH 5 sq m, having already surpassed sales First-hand residential unsold 1 Commodity housing excludes residential proper- for full-year 2014 (9.8 million sq m). ties designated for relocated residents under inventory, Jan/08–Sep/15 urban redevelopment plans, as well as economical Unsold inventory (LHS) Digestion period (RHS) The strong demand coincided with housing. 14 14 TABLE 2 12 12 Second-hand residential market by property type, Q3/2015 10 10 Transactions Average transaction price 8 8 months 6 6 sq m QoQ (%) RMB per sq m QoQ (%) million sq m Apartment 7,434,700 -6.3 25,410 +2.3 4 4 Villa 379,200 -3.1 27,728 -0.6 2 2 Overall 7,813,900 -6.1 25,522 +2.2 0 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: Shanghai Real Estate Transaction Center, Savills Research Source: Shanghai Real Estate Transaction Centre, Savills Research savills.com.cn/research 03 Briefing |Shanghai residential sales November 2015 GRAPH 6 million sq m in Q3/2015, down 3.3% while transaction prices between 2 Second-hand residential sales market QoQ but still the second-highest level Inner & Middle Ring Road averaged transactions and prices, Q1/2007– recorded over the past five years. RMB62,700 per sq m.