Savills World Research Shanghai Briefing Residential sales February 2016 Image: Fuxing Royale, Huangpu SUMMARY 2015 proved to be a record year for the Shanghai market, with prices reaching new highs and transaction volumes rebounding strongly on the back of renewed confidence, falling mortgage rates and rising land values. New commodity residential supply in Q4/2015, adding 695 new units The removal of the one-child policy remained unchanged at 3.6 million sq m (139,000 sq m). is expected to spur upgrade demand in Q4/2015. as parents look to buy bigger homes to Demand remained robust, with accommodate larger families. First-hand commodity residential transaction volumes totalling 354,000 transaction volumes increased 22.1% sq m, up 5.5% QoQ, close to an all-time quarter-on-quarter (QoQ) to 4.9 million market high. sq m in Q4/2015, the highest in over five “Developers accelerated the years. First-hand high-end apartment transaction prices increased 2.4% in launch of new projects in order Average transaction prices soared Q4/2015, to an average of RMB78,400 to capitalise upon the buoyant by 5.9% QoQ to RMB33,900 per sq m, per sq m. bringing annual price growth to 18.3% market conditions, with many in 2015. 21 residential (including pure new high-end projects added to residential and mixed-use) land plots Five new high-end apartment were transacted in Q4/2015, totalling 1.9 the market in the fourth quarter.” projects were launched onto the market million sq m of buildable area, up 47.7% James Macdonald, Savills Research QoQ. savills.com.cn/research 01 Briefing |Shanghai residential sales February 2016 Market news GRAPH 1 PBoC lowered interest rates for the Base lending rate fifth time in 2015 > 5 yr 1-5 yr < 1 yr 8.0% The People’s Bank of China (PBoC) announced a further interest rate 7.5% cut on 24 October 2015, as the 7.0% government looks to reassure markets and shore up the economy. 6.5% The one-year lending rate was 6.0% lowered to 4.35%, while the five-year 5.5% lending rate was cut to 4.9%; both are historical lows. 5.0% 4.5% China removed one-child policy 4.0% The central government announced on 29 October 2015 that all couples would be allowed to have up to two Source: People's Bank of China, Savills Research children from 1 January 2016. The one-child policy was introduced GRAPH 2 in the late 1970s and limited most Shanghai mortgage volumes and residential sales urban couples to one child. Most values rural couples were limited to two children, if the first child born was a Housing loans increase (LHS) Sales values (RHS) girl. In recent years, the policy had 140 1,400 been relaxed to first let parents have 120 1,200 a second child if they were both an only child, and then in 2013, couples 100 1,000 were allowed to have two children if RMB billion RMB either parent was an only child. 80 800 RMB billion RMB 60 600 The removal of the one-child policy is expected to have a positive impact 40 400 on the property market, spurring upgrading demand as parents look to 20 200 buy bigger homes to accommodate 0 0 their larger families. 2010 2011 2012 2013 2014 Jan-Nov/15 Source: People's Bank of China, Savills Research TABLE 1 TABLE 2 Benchmark lending rates, 2015 Shanghai residential market performance, 2015 Interest rate First-hand Second-hand commodity residential residential < 1 year 1-5 years > 5 years YoY YoY 2015 2015 change change 01-Mar-15 5.35% 5.75% 5.90% Supply (mil sq m) 11.9 -4.3% N/A N/A 11-May-15 5.10% 5.50% 5.65% Transaction volume (mil sq m) 15.0 +53.8% 28.5 +112.3% 28-Jun-15 4.85% 5.25% 5.40% Total sales consideration (RMB bn) 482.3 +82.0% 714.5 +150.6% 26-Aug-15 4.60% 5.00% 5.15% Average transaction price (RMB psm) 32,200 +18.3% 25,100 +18.0% 24-Oct-15 4.35% 4.75% 4.90% Source: People's Bank of China Source: Shanghai Real Estate Transaction Centre, Savills Research 02 Briefing |Shanghai residential sales February 2016 Shanghai issued Residential First-hand commodity residential GRAPH 3 Mortgage-Backed Securities transaction volumes totalled 15 First-hand commodity residential (RMBS) million sq m in 2015, up 53.8% market supply, transactions and The Shanghai Housing Provident year-on-year (YoY) and exceeding prices, Q1/2006–Q4/2015 Fund (HPF) Management Centre new supply over the same period Supply (LHS) Transaction volume (LHS) Average transaction price (RHS) issued the first securitised product of 11.9 million sq m. Unsold first- 7 35,000 backed by personal residential hand residential inventory, as a 6 30,000 mortgages in December 2015, with consequence, fell to 10.8 million 5 25,000 a total amount of RMB6.96 billion. sq m at the end of 2015, from a RMB per sq m The notes are the first asset-backed historical peak of 13.4 million sq m at 4 20,000 securities backed by housing the end of 2014. 3 15,000 fund loans to be offered in China’s million sq m 2 10,000 interbank market. The move is Transaction prices continued on designed to replenish housing funds an upward trend, rising by 18.3% 1 5,000 that local governments use to lend to (accelerating 5.8 percentage 0 0 homebuyers at a cheaper rate than points (ppts) YoY) and averaging 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 Q4 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 bank mortgage loans. RMB32,200 per sq m for the FY2015, a new high for the Shanghai market. Source: Shanghai Real Estate Transaction Centre, Savills Research Increasing the volume of loans from the HPF has the benefit of increasing The pick up in activity was more GRAPH 4 affordability at the lower-end of noticeable in the second-hand Second-hand residential sales market3 market and being more targeted than market with transaction volumes transactions and prices, Q1/2007– other more macro monetary and increasing 112.3% in 2015 to 28.5 Q4/2015 financial policy measures. million sq m, with a larger portion of Fringe district transaction volume (LHS) Non-core district transaction volume (LHS) Core district transaction volume (LHS) Overall average price (RHS) deals believed to have come from Core district price (RHS) Non-core district price (RHS) Fringe district price (RHS) Market overview upgrading demand. Transaction 9 45,000 2015 was another record year for the prices averaged RMB25,100 per 8 40,000 Shanghai residential sales market, sq m for FY2015, up 18.0% YoY, 7 35,000 6 30,000 RMB per sq m with strong growth in demand and a similar pace to the first-hand 5 25,000 pricing seen especially in the final residential market. 4 20,000 three quarters of the year. This can million sq m 3 15,000 1 be mainly attributed to a combination Overall commodity 2 10,000 of factors, including monetary residential market 1 5,000 loosening, favourable policies, and a First-hand commodity residential 0 0 shift in investment focus away from supply remained unchanged at 3.6 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 2007 2008 2009 2010 2011 2012 2013 2014 2015 the stock market and towards the million sq m in Q4/2015, down 8.4% property market in first-tier cities. Yo Y. Source: Shanghai Real Estate Transaction Centre, Savills Research 3 Core districts: Changqing, Jing'an, Xuhui and Huangpu. 1 Commodity housing excludes residential properties Non-core districts: Hongkou, Putuo, Zhabei, Yangpu, Minhang and Pudong (including Nanhui) designated for relocated residents under urban redevel- Fringe: Baoshan, Fengxian, Chongming, Jinshan, Qingpu and Songjiang. The PBOC cut benchmark interest opment plans, as well as economical housing. rates five times in 2015. The lowering of interest rates has encouraged TABLE 3 Chinese developers to issue First-hand commodity residential market by property type, Q4/2015 increasing quantities of domestic bonds to roll over debt and lower Supply Transactions Average price financing costs. sq m QoQ (%) sq m QoQ (%) RMB psm QoQ (%) Lower interest rates also contributed to a rebound in new housing loans, Apartment 3,145,600 -1.7 4,268,300 +21.4 33,600 +6.4 reaching RMB133.3 billion in the first Villa 449,500 +20.0 623,200 +26.9 35,400 +2.5 eleven months of 2015, more than double the full year (FY) 2014 figures, Overall 3,595,100 +0.6 4,891,500 +22.1 33,900 +5.9 and an all time high for the city. Source: (Shanghai Real Estate Trading Center; National Bureau of Statictics; Savills Research savills.com.cn/research 03 Briefing |Shanghai residential sales February 2016 The final quarter of 2015 saw a GRAPH 5 number of apartment projects First-hand high-end apartment market4 supply, launched onto the sales market that Q1/2005–Q4/2015 took advantage of the recent surge Primary area Secondary area Emerging area in prices, such as Park Mansion 600,000 (also offering villa products) by Cifi Group and Hong Kong Land, The 500,000 Palace Jing’an by Financial Street Holdings, and two Hysun projects 400,000 (Hysun Putuo and Hysun Chairman in 300,000 Huangpu) by Greenland Group.