China's skyscraper age looks like ending
At more than 609m, Shanghai Tower is the world’s second-tallest building. It looms over its neighbours — the world’s ninth and 19th tallest buildings — in a supercluster of supertall structures unlike any other in the world. The only problem? Finding people to work there: Only 60 per cent of Shanghai Tower is rented out, and only a third of current tenants have actually occupied their leased space.
In this sense, Shanghai Tower signifies the end of an era. Its plight suggests some major changes are afoot in the real-estate market — and, more significantly, in how the professional class lives and works in China.
For two decades, Shanghai’s skyline has symbolised China’s economic renaissance and modernisation. That’s by intention. In 1991, the local government held a competition to design a signature business district on the riverfront. The winning proposal included three supertall buildings intended to represent the rise of Shanghai’s financial district — and of China
Associate Professor Tom Davidoff, the director of the University of British Columbia’s Centre for Urban Economics and Real Estate, said the impact was almost immediate.
“There was a significant correction in the single family home market in particular, starting from about February,” Prof Davidoff said.
In the four months from August last year, foreign investment in British Columbia dropped from 13 per cent to 4 per cent.
From January 2016 to January 2017 house prices in Vancouver fell 18.9 per cent.
“China was a very important player and so after the tax, the fraction of foreign buyers dropped and prices definitely dropped, especially for single family homes,” Prof more broadly.
If Shanghai wanted a private developer to take on such a project today, it wouldn’t be able to find one. The city’s commercial realestate market couldn’t justify the investment. According to CBRE Group, a leasing agent for Shanghai Tower, more than 600,000sq m of new office space went on the city’s market in the first quarter of this year, with an additional 850,000sq m coming soon — even as rents are trending downward and vacancies are up.
That’s common in many of China’s biggest cities. Some 46 per cent of the 150m high buildings under construction in the world are in China, partly spurred by local governments keen to emulate Shanghai’s skyline.
In recent years, seemingly every aspirational Chinese city has followed the same model of highly concentrated downtowns topped by massive towers.
Yet for all its symbolic value, that model is almost certainly obsolete — and the Chinese cities of the future are likely to look very different.
One reason is that China’s Davidoff said. “But that said, those markets were slowing even before the tax came in, so it is hard to gauge the true impact.”
What is apparent, he said, is that local buyers returned to the market en masse, snapping up apartments, in particular.
In Australia, foreign ownership laws of residential property dictate that foreigners can only buy properties to live in.
When they are no longer living in them, they must sell them.
However, the restrictions do not apply to the purchase of off-the-plan homes, a move designed to stimulate chronic undersupply problems that are at the heart of affordability woes in Sydney, in particular.
Vancouver has also adopted that breakneck urbanisation is creating cities that sprawl farther than ever, leading to long commutes, reduced well-being and economic inefficiency. In 2014, the average one-way commute in Beijing and Shanghai exceeded 50 minutes — longer than in New York — while sixhour round-trip commutes are not unknown. For employers, meanwhile, increased sprawl makes it harder and more expensive to connect with labour.
Perhaps more significantly, workplace habits are changing. Older generations were raised to appreciate lifetime employment and the stability of a large organisation — precisely the sort of companies that tend to occupy tall office buildings. But millennials in China, as elsewhere, are embracing gig work (temporary, freelance), part-time opportunities and entrepreneurialism. Co-working spaces are booming. Luring young, less wealthy workers — who typically have to live far from pricey downtowns — is a growing strategy, with the 15 per cent tax exempt from the foreign purchase of what they call “pre-sale” homes.
“A lot of the pre-sale market is now foreign money,” Prof Davidoff said.
“With that going on, in the long run, I think that’s positive for affordability.
“If people buy pre-sale units and sell them before they are complete, they are not part of demand, they are part of supply.”
So why are home prices still skyrocketing in Australia while our measures, adopted by another city, have had such a dramatic impact.?
The answer lies in Australia’s love affair with negative gearing.
Unlike the land Down Under, Canadians do not get tax breaks for purchasing investment properties.
The University of Sydney’s senior challenge for big companies. Likewise, creating the kind of novel workspaces that might appeal to them is difficult in a traditional office tower.
The government’s solution to these problems is to cap the populations of the biggest cities, and encourage development of socalled urban clusters surrounding the traditional city centres. They’ll be connected by high-speed commuter rail (roughly four times quicker than a subway) that can avoid a crowded central hub. With pressure on downtowns reduced, the need to build taller and denser will decline.
In April, President Xi Jinping announced that the government would build a new city designed to siphon people and businesses from Beijing’s crowded centre and serve as a model for urban development for the next 1000 years. Notably, supertall buildings aren’t part of the plan. Shanghai Tower doesn’t need to worry about being topped. lecturer in urbanism, Dallas Rogers, said it has been far easier for foreigners to invest in Canada than it has in Australia, hence why the new measures in Vancouver have had such an impact.
Vacant houses were a huge problem in Vancouver, Prof Davidoff said, as prospective tenants fought it out for the few properties on the market.
In response, last November, the City of Vancouver introduced a 1 per cent empty homes tax, which averages at about $10,000 per year, in a bid to free up more rental stock.
The tax has not had the desired impact. Dr Rogers said unfortunately for the city authorities, the desired outcome of houses either being rented or sold has not been achieved.