In Shanghai, Home Prices Rise Even As Sales Decline

Aug. 1 2011 - 11:59 pm

A scene from the Shanghai Real Estate Fair in China in 2010.

Shanghai is starting to look more like Manhattan. The tier one China city saw its average home sales decline again in July due to higher borrowing costs, yet existing home prices continued to rise thanks to demand from the city’s new rich in search of luxury apartments.

New home sales last month fell by 2.5% to 8.2 million square feet total, less than the 8.6 million square feet in May, Shanghai Deo Volente Realty Co said in a report this week. Average prices per square foot rose 2.6% from June to 22,051 yuan ($3,418) per square meter in July. One square meter is equal to 10.7 square feet, so a 100 square meter (1,076) apartment averages $341,800 in Shanghai.  Luxury homes are around seven times that value.

Increased sales of luxury homes boosted the monthly rise in the average price. A total of 40,000 square meters of new homes costing above 50,000 yuan per square meter were sold in the city last month, up 23% from June, according to Deo Volente data. The supply of new homes last month dropped 14% from June to 860,000 square meters, or 9.2 million square feet.

“While the latest restrictive measures introduced by the central government have left an impact on transaction volumes over the past six months, housing prices managed to hold on,” Lu Qilin, a researcher with Deo Volente told Shanghai Daily on Tuesday. “The average price seemed stable even half a year after the implementation of several tightening policies while many developments across the city posted a rise in prices.”

The government has been trying to curb lending to developers for new residential properties in an effort to cut property inflation.

Agnes Deng, portfolio manager of the Greater China Fund (GCH) run by Baring in Hong Kong, told Forbes recently that high prices are due to a combination of demand, higher incomes among the wealthy. “I don’t believe we have a national asset bubble, but there is one in Shanghai and Beijing and other tier one cities,” she said.

China’s central bank yesterday said it will maintain its current tightening policy in the second half of this year as it continues fighting inflation and an overheated property market.

“Prices could rebound if the bank’s prudent monetary policy stance is eased up,” the People’s Bank of China posted on its website yesterday.  The market has been hoping for peak inflation in the second half, with all of the emerging market fund managers interviewed by Forbes since March saying that inflation would ease up by the third quarter, putting an end to the tightening cycle.

Guotai Junan Securities and Guohai Securities forecast China’s Consumer Price Index in July to come in between 6.2% and 6.4%, while the Industrial Bank and Soochow Securities thinks core inflation will be even higher at 6.7%. Stabilizing housing and key commodity prices remains a top priority of the government, and “it will not allow monetary policies to ease even though economic growth is slowing,” Guohai Securities said in a report Monday.