Gulf between price rises turns choice into a no-brainer

New homes in downtown Shanghai, or those within the city’s Inner Ring, or downtown, sold for an average of 87,426 yuan ($12,700) a square meter last year, an indication that the aspirations of younger people to own a home in the city center are becoming ever more elusive, industry experts say.

In contrast, the average price of homes between the Inner Ring and the Outer Ring was 44,984 yuan a sq m, and those situated beyond the Outer Ring in the suburban areas sold for 18,127 yuan a sq m.

The Chinese Academy of Social Sciences says that in the year ended January home prices in Shanghai rose 61.28 percent. Some of the mega cities in China have entered a “super high home price period” as median prices of homes in Beijing reached 57,568 yuan a sq m in January, followed by Shanghai at 52,429 yuan a sq m, the academy said.

The Chinese residential market started to grow quickly between 2015 Expensive homes leave the cash-strapped in outer orbit

Zhao Xudong says he has shown so many apartments, either to buy or to let, to clients over the past four years that he has lost count, but he is sure of one thing: finding a home in Shanghai is fiendishly difficult.

“It’s extremely hard to find the right house, especially if you are on a tight budget,” says the 27-year-old, who has worked as a property agent for Shanghai Sinyi Realty Agency and Consulting Co since 2013.

Most homebuyers regret not having bought a home earlier, he says. For example, an apartment in Shanghai’s downtown Xuhui district priced at 6 million yuan at the start of 2015 was selling for 10 million yuan by the end of last year. Zhao says his Chinese clients, regardless of age, income or marital status are all are trying to buy an apartment of their own in Shanghai.

“This is because Chinese people feel that if you own an apartment in a city, no matter how small, they own their own home. This is extremely important for someone coming from another city with no relatives in the new city.”

The rentals business is much more stable than the overheated property market, he says. However, of all those he has helped find a rental apartment, those choosing to rent something downtown have done so only because they cannot afford to buy a home there, he says.

“I now live in an apartment far from town, but my goal is to buy a 2 million yuan apartment somewhere within the city’s Outer Ring area.” Because there are limited residential properties in the city center, only those wealthy enough can afford them.” James Macdonald, head of Savills China research

and 2016, and the sales volume of the nation’s residential properties rose 27.14 percent year-on-year between January and September, 20.27 percentage points higher than in 2015.

For a variety of reasons, such as the growth in incomes, Shanghai’s growing importance as a global city, an expanding population and urbanization, average home prices in Shanghai rose from 10,336 yuan a sq m a decade ago to 32,151 yuan a sq m in 2015, said James Macdonald, head of Savills China research.

“The development of Shanghai has brought about many valuable job positions as well as expanded the population. But because there are limited residential properties in the city center, only those wealthy enough can afford them.”

Indeed, despite rising home prices, there has been no sign of sales slowing. Last year 20.2 million sq m of new homes were sold in the city, 0.5 percent more than in the previous year. At the same time 31.6 million sq m of second hand homes changed hands, 4.2 percent more than the previous year.

Experts say prices in downtown Shanghai will continue to rise, especially since the city has pretensions of being a global city on a par with New York or London.

Chen Sheng, president of the China Real Estate Data Academy, says the average home price in Shanghai is about $9,000 a sq m; a similar home in New York would cost $16,000 a sq m.

Chinese authorities should provide more affordable housing for people on the outskirts of the city, he says, adding that the price of a home in suburban New York can be 40 percent of the price of a home downtown. In Shanghai, however, a home in the suburbs can cost 60 percent the price of one in the downtown area.