Savills World Research

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 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 m sq per RMB 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 sq per RMB 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, , Yangpu, Minhang and (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. Most sq m of the projects were relatively small schemes (only a handful of towers) 200,000 rather than some of the larger-scale residential communities that are 100,000 common in China. 0 Q1/05 Q1/06 Q1/07 Q1/08 Q1/09 Q1/10 Q1/11 Q1/12 Q1/13 Q1/14 Q1/15 Benefitting from a combination of Source: Shanghai Real Estate Transaction Centre, Savills Research seasonal factors, further monetary 4Primary: Well-established luxury residential enclaves within the inner ring road ( (M), Lujiazui Riverside, Xinhua Road, etc). loosening and rising buying Secondary: Developing high-end residential enclaves within the middle ring road (Huamu, Dapuqiao, Gubei, etc). sentiment, the fourth quarter Emerging: Emerging high-end residential enclaves outside the middle ring road (New Jiangwan Town, Sanlin, Waigaoqiao, etc). continued to see robust demand, with first-hand commodity residential Demand has consistently exceeded Similar to the first-hand market, transaction volumes increasing supply since the beginning of the second-hand residential transaction 22.1% QoQ to 4.9 million sq m in year, reducing unsold inventory stock volumes recorded a rebound in Q4/2015, the highest quarterly level and pushing up average transaction Q4/2015, increasing 10.3% QoQ for over five years. prices to a new high of RMB33,900 to 8.6 million sq m, a new record. per sq m in Q4/2015. Average transaction prices continued

TABLE 4 High-end apartment supply, Q4/2015

Transaction Launch GFA Total no. Average unit No. of units Project Area Developer District price (RMB date (sq m) of units size (sq m) sold per sq m) Bund House, Ph3 Huazhe Oct Primary Huangpu 90-110,000 34,264 115 298 40 绿城黄浦湾, 三期 Waitan Oceanwide Int’l Apartment Oct Primary Oceanwide Huangpu 80-85,000 6,862 44 156 38 泛海国际公寓 Lakeville Luxe Nov Primary Shui On Huangpu 120-134,000 45,263 183 247 16 翠湖天地隽荟 Chateau Pinnacle Nov Primary Ye Feng Changning 85-90,000 16,527 53 312 15 华山夏都 Danasty Garden Tianyi, Oct Secondary Huangpu 100-110,000 20,517 108 190 24 淡水湾花园 Lanyin Shanghai Bay, 11#-12# Oct Secondary Glorious Xuhui 75-100,000 44,657 180 248 104 尚海湾豪庭, 11-12号楼 Yanlord on the Park Oct Secondary Yanlord Pudong 78-88,000 34,844 188 185 81 仁恒世纪公寓 Oriental Bay Jin Yuan, 2nd 90,000 Nov Secondary Donghang Xuhui 60,305 134 450 -* batch云锦东方锦园, 第二批 (asking price) One Majesty Nov Secondary Cofco Zhabei 80-100,000 21,233 92 231 69 中粮天悦壹号 Dynasty on , 4th Dec Secondary New World Huangpu 100,000 24,298 110 221 1 batch 丰盛皇朝, 第四批 Phili Regency 90,000 Dec Emerging Poly Yangpu 30,776 188 164 -* 翡丽甲第 (asking price) Source: Shanghai Real Estate Transaction Centre, Savills Research *No transactions registered in the SRETC system as of Q4/2015.

04 Briefing | Shanghai residential sales February 2016

their upward trajectory, hitting a new 354,000 sq m. Average transaction GRAPH 6 high of RMB25,700 per sq m in the prices increased 2.4% QoQ on First-hand high-end apartment market fourth quarter. an index basis to an average of transactions and prices, Q1/2005– RMB78,400 per sq m in the fourth Q4/2015 Primary area transaction volume (LHS) Secondary area transaction volume (LHS) High-end residential quarter. Emerging area transaction volume (LHS) Primary area price index (RHS) sales market2 Secondary area price index (RHS) Emerging area price index (RHS) 450,000 350 Strong sales leading up to the end Shanghai witnessed two apartment 400,000 of the year, and a positive short term 300 unit transactions in the first-hand 350,000 outlook, encouraged a number of 250 market which represented new 300,000 developers to accelerate the launch record highs for the city in per sq 250,000 200 sq m of new products in order to capitalise m values. Both units were located 200,000 150 upon the buoyant market conditions. in Tomson Riviera (Tower 8), and 150,000 100 sold on 17 and 18 November 2015 100,000 50 First-hand high-end apartment for RMB251,600 per sq m and 50,000 supply totalled 339,500 sq m, with RMB269,200 per sq m respectively. 0 0 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 Q1 Q2 Q3 Q4 nearly 1,400 new units launched onto 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 the market in Q4/2015. Almost half Project focus Source: Shanghai Real Estate Transaction Centre, Savills Research of the units were in newly-launched Oceanwide International Apartment projects as opposed to subsequent (泛海国际公寓) GRAPH 7 batches in existing developments. Residential land transaction area Five new high-end apartment (buildable area) and AV, Q1/2007– projects were launched in Q4/2015, Q4/2015 adding 695 new units (139,000 sq m) Land transaction GFA (LHS) Accommodation value (RHS) to the sales market, accounting for 4.5 27,000 41% of total high-end new supply 4.0 24,000 by GFA. 3.5 21,000 3.0 18,000 RMB per sq m sq per RMB First-hand high-end apartment 2.5 15,000 Located in Huangpu’s Dongjiadu transaction volumes remained 2.0 12,000 area, Oceanwide International million sq m

1.5 9,000 relatively high, up 5.5% QoQ to Apartment is a new high-end 1.0 6,000 2 Judged by a number of criteria including location, apartment complex developed 0.5 3,000 building quality, total volumes, unit size, transaction price and property management by Oceanwide Holdings. The 0.0 0 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 TABLE 5 Source: Shanghai Municipal Bureau of Planning and Land Resources; Savills Top five areas by first-hand apartment transaction prices, Research Q4/2015 vs Q3/2015 GRAPH 8 Average transaction price Bankuai District (RMB per sq m) Residential land sales revenues and AV, 2006–2015 Lujiazui Riverside Pudong 150,800

Residential land sales revenues (LHS) Accommodation value (RHS) Xijiao Changning 130,900 140 21,000 Q4/2015 Huaihai Road (M) Huangpu 129,000 120 18,000 Hengshan Road Xuhui 109,600 100 15,000

Nanjing Road (W) Jing'an 97,700 m sq per RMB 80 12,000 Huaihai Road (M) Huangpu 130,200 RMB billion RMB 60 9,000

Lujiazui Riverside Pudong 123,200 40 6,000 Q3/2015 Hengshan Road Xuhui 99,400 20 3,000 (W) Jing'an 95,200 0 0 Huangpu Riverside Huangpu 86,400 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Shanghai Municipal Bureau of Planning and Land Resources; Savills Source: Shanghai Real Estate Transaction Centre, Savills Research Research

05 Briefing |Shanghai residential sales February 2016

project enjoys easy access to the 2015) and Bund House (RMB97,000 One notable deal was the acquisition Xiaonanmen Metro Station (line 9). per sq m), both launching in 2009. by Cinda Real Estate of a pure The latter just launched its third residential land plot in New Jiangwan Covering Dongjiadu Plots 10, 12 and phase in October 2015. City, in the , for 14, the project occupies a site area RMB7.3 billion on 25 November of 120,000 sq m, with nearly 397,000 Residential land market 2015, beating competitors such sq m of above-ground gross floor Shanghai continued to see fierce as China Overseas Land, Yango area (GFA) including 303,000 sq m competition for new land plots Group and a consortium of Longfor of residential GFA. Currently Plot 10 among developers as a result of the Properties and Ping An Group. The is under construction while Plots 12 strictly-controlled land supply and site has an area of 132,000 sq m and and 14 are still waiting for relocation. the bullish sentiment in the residential a plot ratio of 1.125, giving it an AV Seven residential buildings totalling sales market. Falling interest rates of RMB49,200 per sq m (RMB61,400 300 units are planned to be built on and financing costs encouraged after a reduction for affordable Plot 10. real estate companies, especially housing allocation) which marked a state-owned enterprises (SOEs) and new AV record for the area. In October 2015, the project large private companies, to put in launched its first phase of 44 aggressive bids at the recent land Radiance Group won a purely apartment units in a 15-storey auctions. residential land parcel in Xinzhuang residential building, adding 6,900 in the for a total sq m to the sales market. The main Twenty one residential (including pure consideration of RMB2.8 billion on 10 offerings were two-bedroom (131 sq residential and mixed-use) land plots December 2015. Located southeast m) and three-bedroom (180 sq m) were transacted in Q4/2015, totalling of the Xinzhuang Overpass, the site units. Current asking prices average 1.9 million sq m of buildable area, has a buildable area of 64,300 sq m. RMB90,000 per sq m. Thirty eight up 47.7% QoQ. Accommodation The acquisition represented an AV of units had been sold by the end values (AV) of transacted land RMB43,800 per sq m. More than 20 of 2015, with transaction prices plots averaged RMB18,500 per real estate companies participated averaging RMB82,300 per sq m. The sq m, down 12.8% from Q3/2015, in the land auction, pushing up the second phase of six 18- to 22-storey mainly held back by the relatively premium to 143.3% over the reserve residential buildings is now under inexpensive (

TABLE 6 Top residential land deals by AV, Q4/2015 vs Q3/2015

Transacted Site area GFA Premium AV (RMB per Date District Plot ratio price (sq m) (sq m) (%) sq m) (RMB million) Nov Yangpu 131,998 148,498 1.1 7,299 81.7 49,152

Q4/2015 Dec Minhang 32,142 64,284 2.0 2,815 143.3 43,790 Dec Jiading 95,382 171,688 1.8 4,650 108.3 27,084 Quarter - - 1,131,359 1,851,816 1.6 34,340 73.8 18,544

Aug Yangpu 15,277 35,137 2.3 1,730 59.6 49,236

Q3/2015 Sep Baoshan 60,250 120,500 2.0 3,465 91.7 28,755

Jul Zhabei 77,274 393,323 5.1 8,815 50.1 22,412

Quarter - - 567,847 1,253,493 2.2 26,670 71.0 21,276

Source: Shanghai Municipal Bureau of Planning and Land Resources, Savills Research

06 Briefing |Shanghai residential sales February 2016

residential land sales revenues by has been clearly evidenced by the (VAT) in the property sector. The real 17.8% YoY to RMB100.4 billion in postponement of several residential estate registration system, regarded 2015, though this still accounted for land auctions while these changes as the foundation for property tax, over 60% of all land sales revenue for were introduced. Should prices has been moved forward, with full the city. continue to increase rapidly, the provisional regulations released on 1 Shanghai government may even January 2016. Residential sales choose to adopt similar measures market outlook to those seen in Beijing, namely the Despite the above measures, the While the central government has introduction of self-use housing units Shanghai market is expected to sent a clear message that it plans (自住型商品住房). While falling under continue to record steady price to support the China property the definition of commodity housing, growth and healthy transaction market through the clearing of these units are priced below market volumes going forwards. Innovations unsold inventory, Shanghai, as one values and are typically sold via a in the finance and business world of the country’s hottest markets, lottery system to local households continue to attract companies and is expected to continue enforcing that are not already homeowners. talented individuals to the city, existing restrictions or even generating a strong base of demand introducing new measures to prevent In addition to the continued for the housing market. Strong end- the market from overheating. implementation of existing regulation, user demand continues to underpin long-term policies, despite delays, pricing, but a vibrant and rapidly The local government is taking are still expected to be rolled out, growing leasing market have created actions to create a healthier property including the implementation of new opportunities for buy-to-let market by increasing the percentage property tax and the transition from investors, pushing up pricing further of small- to mid-sized units, which business tax to valued added tax in the coming years. 

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