Shanghai’s wealthy residents upgrade to premium homes, ignoring property market upheaval

Most high-net-worth individuals believe the land scarcity and long-term economic growth potential of the mainland’s commercial and financial hub will continue to fuel price increases of expensive flats.

A total of 1,544 luxury homes were transacted in Shanghai in the first half of the year, a 39 per cent increase from the same period last year, according to data from China Real Estate Information Corp (CRIC). About 90 per cent of them were sold on the primary market, according to You Liangzhou, owner of property agency Baonuo in Shanghai.

Flats in downtown areas are normally priced at 200,000 yuan per square metre, which is equivalent to a white-collar clerk’s annual salary.

“New housing projects that started selling this year have attracted wealthy people,” said Shirley Tang, senior director of residential sales at Savills Shanghai. “We have seen a strong desire among wealthy buyers to replace old units. They have put behind worries about a stock market downturn and they have sufficient cash to upgrade their housing.”

Local authorities in Shanghai continue to maintain a tight grip on prices of new homes. The city’s housing bureau reviews developers’ prices of new projects, and sets caps to stabilise the market. In most cases, new homes are sold at a discount to existing lived-in flats in the neighbourhood.

“Luxury homes in Shanghai are always worth buying even though there are mounting worries about a housing bubble,” said Gu Wenjin, a Shanghai-based entrepreneur who has a budget of about 50 million yuan for a new flat. “After all, these are rare assets chased by nearly all rich people from Shanghai and other parts of the country.”

A 36,680-square metre residential plot in Xuhui fetched a record price at an auction on Wednesday, a fresh sign underscoring mainland developers’ increasing zeal for building premium homes to attract high-networth families.

Greentown China Holdings paid 4.8 billion yuan or 131,000 yuan per sq m, according to official data in the tender, beating the previous record of 100,000 yuan set in August 2016 by Ronshine for a plot in Jingan district.

Prices of newly built homes across China declined for a 13th consecutive month in June, according to data published by the statistics bureau last month. New homes across 70 cities fell sequentially by 0.7 per cent in June and 0.71 per cent drop in May.

“Most would-be homebuyers, including those in Shanghai, are wary of further price drops, except for high-net-worth families, who are eager to own premium units with views of the Huangpu River or those with sweeping views of the city,” said Song Yulin, a senior manager with property agency Lianjia, a unit of KE Holdings. “In the near term, the luxury segment will continue its upwards momentum.”