Savills World Research Shanghai Briefing Residential sales February 216 SUMMARY Image: Fuxing Royale, Huangpu 215 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 remained unchanged at 3.6 million sq m in /215. First-hand commodity residential transaction volumes increased 22.1% quarter-on-quarter (QoQ) to 4.9 million sq m in /215, the highest in over five years. Average transaction prices soared by 5.9% QoQ to RMB33,9 per sq m, bringing annual price growth to 18.3% in 215. Five new high-end apartment projects were launched onto the market in /215, adding 695 new units (139, sq m). Demand remained robust, with transaction volumes totalling 354, sq m, up 5.5% QoQ, close to an all-time market high. First-hand high-end apartment transaction prices increased 2.4% in /215, to an average of RMB78,4 per sq m. 21 residential (including pure residential and mixed-use) land plots were transacted in /215, totalling 1.9 million sq m of buildable area, up 47.7% QoQ. The removal of the one-child policy is expected to spur upgrade demand as parents look to buy bigger homes to accommodate larger families. Developers accelerated the launch of new projects in order to capitalise upon the buoyant market conditions, with many new high-end projects added to the market in the fourth quarter. James Macdonald, Savills Research savills.com.cn/research 1
Market news PBoC lowered interest rates for the fifth time in 215 The People s Bank of China (PBoC) announced a further interest rate cut on 24 October 215, as the government looks to reassure markets and shore up the economy. The one-year lending rate was lowered to 4.35%, while the five-year lending rate was cut to 4.9%; both are historical lows. GRAPH 1 Base lending rate 8.% 7.5% 7.% 6.5% 6.% 5.5% 5.% > 5 yr 1-5 yr < 1 yr China removed one-child policy The central government announced on 29 October 215 that all couples would be allowed to have up to two children from 1 January 216. The one-child policy was introduced in the late 197s and limited most urban couples to one child. Most rural couples were limited to two children, if the first child born was a girl. In recent years, the policy had been relaxed to first let parents have a second child if they were both an only child, and then in 213, couples were allowed to have two children if either parent was an only child. The removal of the one-child policy is expected to have a positive impact on the property market, spurring upgrading demand as parents look to buy bigger homes to accommodate their larger families. 4.5% 4.% Source: People's Bank of China, Savills Research GRAPH 2 Shanghai mortgage volumes and residential sales values RMB billion 14 12 1 8 6 4 2 Housing loans increase (LHS) Sales values (RHS) 21 211 212 213 214 Jan-Nov/15 1,4 1,2 1, 8 6 4 2 RMB billion Source: People's Bank of China, Savills Research TABLE 1 Benchmark lending rates, 215 TABLE 2 Shanghai residential market performance, 215 Interest rate < 1 year 1-5 years > 5 years 1-Mar-15 5.35% 5.75% 5.9% 11-May-15 5.1% 5.5% 5.65% 28-Jun-15 4.85% 5.25% 5.4% 26-Aug-15 4.6% 5.% 5.15% 24-Oct-15 4.35% 4.75% 4.9% Source: People's Bank of China First-hand commodity residential 215 YoY change Second-hand residential 215 YoY change Supply (mil sq m) 11.9-4.3% N/A N/A Transaction volume (mil sq m) 15. +53.8% 28.5 +112.3% Total sales consideration (RMB bn) 482.3 +82.% 714.5 +15.6% Average transaction price (RMB psm) 32,2 +18.3% 25,1 +18.% 2
Shanghai issued Residential Mortgage-Backed Securities (RMBS) The Shanghai Housing Provident Fund (HPF) Management Centre issued the first securitised product backed by personal residential mortgages in December 215, with a total amount of RMB6.96 billion. The notes are the first asset-backed securities backed by housing fund loans to be offered in China s interbank market. The move is designed to replenish housing funds that local governments use to lend to homebuyers at a cheaper rate than bank mortgage loans. Increasing the volume of loans from the HPF has the benefit of increasing affordability at the lower-end of market and being more targeted than other more macro monetary and financial policy measures. Market overview 215 was another record year for the Shanghai residential sales market, with strong growth in demand and pricing seen especially in the final three quarters of the year. This can be mainly attributed to a combination of factors, including monetary loosening, favourable policies, and a shift in investment focus away from the stock market and towards the property market in first-tier cities. The PBOC cut benchmark interest rates five times in 215. The lowering of interest rates has encouraged Chinese developers to issue increasing quantities of domestic bonds to roll over debt and lower financing costs. Lower interest rates also contributed to a rebound in new housing loans, reaching RMB133.3 billion in the first eleven months of 215, more than double the full year (FY) 214 figures, and an all time high for the city. First-hand commodity residential transaction volumes totalled 15 million sq m in 215, up 53.8% year-on-year (YoY) and exceeding new supply over the same period of 11.9 million sq m. Unsold firsthand residential inventory, as a consequence, fell to 1.8 million sq m at the end of 215, from a historical peak of 13.4 million sq m at the end of 214. Transaction prices continued on an upward trend, rising by 18.3% (accelerating 5.8 percentage points (ppts) YoY) and averaging RMB32,2 per sq m for the FY215, a new high for the Shanghai market. The pick up in activity was more noticeable in the second-hand market with transaction volumes increasing 112.3% in 215 to 28.5 million sq m, with a larger portion of deals believed to have come from upgrading demand. Transaction prices averaged RMB25,1 per sq m for FY215, up 18.% YoY, a similar pace to the first-hand residential market. Overall commodity 1 residential market First-hand commodity residential supply remained unchanged at 3.6 million sq m in /215, down 8.4% YoY. 1 Commodity housing excludes residential properties designated for relocated residents under urban redevelopment plans, as well as economical housing. GRAPH 3 First-hand commodity residential market supply, transactions and prices, /26 /215 million sq m 7 6 5 4 3 2 1 Supply (LHS) Transaction volume (LHS) Average transaction price (RHS) 26 27 28 29 21 211 212 213 214 215 35, 3, 25, 2, 15, 1, 5, GRAPH 4 Second-hand residential sales market 3 transactions and prices, /27 /215 million sq m 9 8 7 6 5 4 3 2 1 Fringe district transaction volume (LHS) Core district transaction volume (LHS) Core district price (RHS) Fringe district price (RHS) Non-core district transaction volume (LHS) Overall average price (RHS) Non-core district price (RHS) 27 28 29 21 211 212 213 214 215 3 Core districts: Changqing, Jing'an, Xuhui and Huangpu. Non-core districts: Hongkou, Putuo, Zhabei, Yangpu, Minhang and Pudong (including Nanhui) Fringe: Baoshan, Fengxian, Chongming, Jinshan, Qingpu and Songjiang. TABLE 3 First-hand commodity residential market by property type, /215 Supply Transactions Average price sq m QoQ (%) sq m QoQ (%) RMB psm QoQ (%) Apartment 3,145,6-1.7 4,268,3 +21.4 33,6 +6.4 Villa 449,5 +2. 623,2 +26.9 35,4 +2.5 Overall 3,595,1 +.6 4,891,5 +22.1 33,9 +5.9 Source: (Shanghai Real Estate Trading Center; National Bureau of Statictics; Savills Research 45, 4, 35, 3, 25, 2, 15, 1, 5, savills.com.cn/research 3
The final quarter of 215 saw a number of apartment projects launched onto the sales market that took advantage of the recent surge in prices, such as Park Mansion (also offering villa products) by Cifi Group and Hong Kong Land, The Palace Jing an by Financial Street Holdings, and two Hysun projects (Hysun Putuo and Hysun Chairman in Huangpu) by Greenland Group. Most of the projects were relatively small schemes (only a handful of towers) rather than some of the larger-scale residential communities that are common in China. Benefitting from a combination of seasonal factors, further monetary loosening and rising buying sentiment, the fourth quarter continued to see robust demand, with first-hand commodity residential transaction volumes increasing 22.1% QoQ to 4.9 million sq m in /215, the highest quarterly level for over five years. GRAPH 5 First-hand high-end apartment market 4 supply, /25 /215 sq m 6, 5, 4, 3, 2, 1, Demand has consistently exceeded supply since the beginning of the year, reducing unsold inventory stock and pushing up average transaction prices to a new high of RMB33,9 per sq m in /215. Primary area Secondary area Emerging area /5 /6 /7 /8 /9 /1 /11 /12 /13 /14 /15 4 Primary: Well-established luxury residential enclaves within the inner ring road (Huaihai Road (M), Lujiazui Riverside, Xinhua Road, etc). Secondary: Developing high-end residential enclaves within the middle ring road (Huamu, Dapuqiao, Gubei, etc). Emerging: Emerging high-end residential enclaves outside the middle ring road (New Jiangwan Town, Sanlin, Waigaoqiao, etc). Similar to the first-hand market, second-hand residential transaction volumes recorded a rebound in /215, increasing 1.3% QoQ to 8.6 million sq m, a new record. Average transaction prices continued TABLE 4 High-end apartment supply, /215 Project Bund House, Ph3 绿城黄浦湾, 三期 Oceanwide Int l Apartment 泛海国际公寓 Lakeville Luxe 翠湖天地隽荟 Chateau Pinnacle 华山夏都 Danasty Garden 淡水湾花园 Shanghai Bay, 11#-12# 尚海湾豪庭, 11-12 号楼 Yanlord on the Park 仁恒世纪公寓 Oriental Bay Jin Yuan, 2nd batch 云锦东方锦园, 第二批 One Majesty 中粮天悦壹号 Dynasty on the Bund, 4th batch 丰盛皇朝, 第四批 Phili Regency 翡丽甲第 Launch date Oct Area Developer District Primary Huazhe Waitan Transaction price (RMB per sq m) GFA (sq m) Total no. of units Average unit size (sq m) No. of units sold Huangpu 9-11, 34,264 115 298 4 Oct Primary Oceanwide Huangpu 8-85, 6,862 44 156 38 Nov Primary Shui On Huangpu 12-134, 45,263 183 247 16 Nov Primary Ye Feng Changning 85-9, 16,527 53 312 15 Oct Secondary * No transactions registered in the SRETC system as of /215. Tianyi, Lanyin Huangpu 1-11, 2,517 18 19 24 Oct Secondary Glorious Xuhui 75-1, 44,657 18 248 14 Oct Secondary Yanlord Pudong 78-88, 34,844 188 185 81 Nov Secondary Donghang Xuhui 9, (asking price) 6,35 134 45 -* Nov Secondary Cofco Zhabei 8-1, 21,233 92 231 69 Dec Secondary New World Huangpu 1, 24,298 11 221 1 Dec Emerging Poly Yangpu 9, (asking price) 3,776 188 164 -* 4
their upward trajectory, hitting a new high of RMB25,7 per sq m in the fourth quarter. High-end residential sales market 2 Strong sales leading up to the end of the year, and a positive short term outlook, encouraged a number of developers to accelerate the launch of new products in order to capitalise upon the buoyant market conditions. First-hand high-end apartment supply totalled 339,5 sq m, with nearly 1,4 new units launched onto the market in /215. Almost half of the units were in newly-launched projects as opposed to subsequent batches in existing developments. Five new high-end apartment projects were launched in /215, adding 695 new units (139, sq m) to the sales market, accounting for 41% of total high-end new supply by GFA. 354, sq m. Average transaction prices increased 2.4% QoQ on an index basis to an average of RMB78,4 per sq m in the fourth quarter. Shanghai witnessed two apartment unit transactions in the first-hand market which represented new record highs for the city in per sq m values. Both units were located in Tomson Riviera (Tower 8), and sold on 17 and 18 November 215 for RMB251,6 per sq m and RMB269,2 per sq m respectively. Project focus Oceanwide International Apartment ( 泛海国际公寓 ) GRAPH 6 First-hand high-end apartment market transactions and prices, /25 /215 sq m Primary area transaction volume (LHS) Emerging area transaction volume (LHS) Secondary area price index (RHS) 45, 4, 35, 3, 25, 2, 15, 1, 5, Secondary area transaction volume (LHS) Primary area price index (RHS) Emerging area price index (RHS) 25 26 27 28 29 21 211 212 213 214 215 GRAPH 7 Residential land transaction area (buildable area) and AV, /27 /215 4.5 4. 3.5 3. Land transaction GFA (LHS) Accommodation value (RHS) 35 3 25 2 15 1 5 27, 24, 21, 18, First-hand high-end apartment transaction volumes remained relatively high, up 5.5% QoQ to 2 Judged by a number of criteria including location, building quality, total volumes, unit size, transaction price and property management Located in Huangpu s Dongjiadu area, Oceanwide International Apartment is a new high-end apartment complex developed by Oceanwide Holdings. The million sq m 2.5 2. 1.5 1..5. 15, 12, 9, 6, 3, TABLE 5 Top five areas by first-hand apartment transaction prices, /215 vs /215 /215 /215 Bankuai District Average transaction price () Lujiazui Riverside Pudong 15,8 Xijiao Changning 13,9 Huaihai Road (M) Huangpu 129, Hengshan Road Xuhui 19,6 Nanjing Road (W) Jing'an 97,7 Huaihai Road (M) Huangpu 13,2 Lujiazui Riverside Pudong 123,2 Hengshan Road Xuhui 99,4 Nanjing Road (W) Jing'an 95,2 Huangpu Riverside Huangpu 86,4 GRAPH 8 Residential land sales revenues and AV, 26 215 RMB billion 14 12 1 8 6 4 2 27 28 29 21 211 212 213 214 215 Source: Shanghai Municipal Bureau of Planning and Land Resources; Savills Research Residential land sales revenues (LHS) Accommodation value (RHS) 26 27 28 29 21 211 212 213 214 215 21, 18, 15, 12, 9, 6, 3, Source: Shanghai Municipal Bureau of Planning and Land Resources; Savills Research 5
project enjoys easy access to the Xiaonanmen Metro Station (line 9). Covering Dongjiadu Plots 1, 12 and 14, the project occupies a site area of 12, sq m, with nearly 397, sq m of above-ground gross floor area (GFA) including 33, sq m of residential GFA. Currently Plot 1 is under construction while Plots 12 and 14 are still waiting for relocation. Seven residential buildings totalling 3 units are planned to be built on Plot 1. In October 215, the project launched its first phase of 44 apartment units in a 15-storey residential building, adding 6,9 sq m to the sales market. The main offerings were two-bedroom (131 sq m) and three-bedroom (18 sq m) units. Current asking prices average RMB9, per sq m. Thirty eight units had been sold by the end of 215, with transaction prices averaging RMB82,3 per sq m. The second phase of six 18- to 22-storey residential buildings is now under construction and is expected to be launched in 217. Competing projects in the area on the first-hand market include The Bound of Bund (transaction prices averaging RMB96, per sq m in 215) and Bund House (RMB97, per sq m), both launching in 29. The latter just launched its third phase in October 215. Residential land market Shanghai continued to see fierce competition for new land plots among developers as a result of the strictly-controlled land supply and the bullish sentiment in the residential sales market. Falling interest rates and financing costs encouraged real estate companies, especially state-owned enterprises (SOEs) and large private companies, to put in aggressive bids at the recent land auctions. Twenty one residential (including pure residential and mixed-use) land plots were transacted in /215, totalling 1.9 million sq m of buildable area, up 47.7% QoQ. Accommodation values (AV) of transacted land plots averaged RMB18,5 per sq m, down 12.8% from /215, mainly held back by the relatively inexpensive (<RMB5, per sq m) plots in suburban areas. Average premiums over reserve prices reached 73.8%, up from an average of 71.% in /215, evidence of developers enthusiasm and sustained confidence in the Shanghai market. One notable deal was the acquisition by Cinda Real Estate of a pure residential land plot in New Jiangwan City, in the Yangpu District, for RMB7.3 billion on 25 November 215, beating competitors such as China Overseas Land, Yango Group and a consortium of Longfor Properties and Ping An Group. The site has an area of 132, sq m and a plot ratio of 1.125, giving it an AV of RMB49,2 per sq m (RMB61,4 after a reduction for affordable housing allocation) which marked a new AV record for the area. Radiance Group won a purely residential land parcel in Xinzhuang in the Minhang District for a total consideration of RMB2.8 billion on 1 December 215. Located southeast of the Xinzhuang Overpass, the site has a buildable area of 64,3 sq m. The acquisition represented an AV of RMB43,8 per sq m. More than 2 real estate companies participated in the land auction, pushing up the premium to 143.3% over the reserve price. The area of land transacted fell by 43.8% YoY to 2.8 million sq m (site area), while AVs increased 55.6% YoY to an average of over RMB19,8 per sq m for FY215. The combined effect was to reduce TABLE 6 Top residential land deals by AV, /215 vs /215 Date District Site area (sq m) GFA (sq m) Plot ratio Transacted price (RMB million) Premium (%) AV (RMB per sq m) Nov Yangpu 131,998 148,498 1.1 7,299 81.7 49,152 /215 Dec Minhang 32,142 64,284 2. 2,815 143.3 43,79 Dec Jiading 95,382 171,688 1.8 4,65 18.3 27,84 Quarter - - 1,131,359 1,851,816 1.6 34,34 73.8 18,544 Aug Yangpu 15,277 35,137 2.3 1,73 59.6 49,236 /215 Sep Baoshan 6,25 12,5 2. 3,465 91.7 28,755 Jul Zhabei 77,274 393,323 5.1 8,815 5.1 22,412 Quarter - - 567,847 1,253,493 2.2 26,67 71. 21,276 Source: Shanghai Municipal Bureau of Planning and Land Resources, Savills Research 6
residential land sales revenues by 17.8% YoY to RMB1.4 billion in 215, though this still accounted for over 6% of all land sales revenue for the city. Residential sales market outlook While the central government has sent a clear message that it plans to support the China property market through the clearing of unsold inventory, Shanghai, as one of the country s hottest markets, is expected to continue enforcing existing restrictions or even introducing new measures to prevent the market from overheating. The local government is taking actions to create a healthier property market by increasing the percentage of small- to mid-sized units, which has been clearly evidenced by the postponement of several residential land auctions while these changes were introduced. Should prices continue to increase rapidly, the Shanghai government may even choose to adopt similar measures to those seen in Beijing, namely the introduction of self-use housing units ( 自住型商品住房 ). While falling under the definition of commodity housing, these units are priced below market values and are typically sold via a lottery system to local households that are not already homeowners. In addition to the continued implementation of existing regulation, long-term policies, despite delays, are still expected to be rolled out, including the implementation of property tax and the transition from business tax to valued added tax (VAT) in the property sector. The real estate registration system, regarded as the foundation for property tax, has been moved forward, with full provisional regulations released on 1 January 216. Despite the above measures, the Shanghai market is expected to continue to record steady price growth and healthy transaction volumes going forwards. Innovations in the finance and business world continue to attract companies and talented individuals to the city, generating a strong base of demand for the housing market. Strong enduser demand continues to underpin pricing, but a vibrant and rapidly growing leasing market have created new opportunities for buy-to-let investors, pushing up pricing further in the coming years. Please contact us for further information Savills Research Savills Agency Project & Development Consultancy James Macdonald Director, China james.macdonald@savills.com.cn Siu Wing Chu Deputy Managing Director siuwing.chu@savills.com.cn Shirley Tang Director shirley.tang@savills.com.cn Kitty Tan Director kitty.tan@savills.com.cn Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 7 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. savills.com.cn/research 7