Shanghai's hottest commodity is pre-owned flats as price curbs on new projects lead to scramble in secondary market

By Daniel Ren in Shanghai

/ SCMP |

June 24, 2021 10:38 AM SGT

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SINGAPORE (EDGEPROP) - A scarce supply of new homes in Shanghai and regulatory curbs have sparked a scramble among thousands of cash-rich buyers for high-end pre-owned flats in China's financial hub, driving up the prices in secondary market to record highs. (See also: Alibaba’s Tmall to upend China’s real estate industry by using the internet for the entire sales process from viewing to paying)

Some of the homebuyers, falling victim to new administrative measures to disqualify buyers and cool a red-hot property market, had to pay an extra million of yuan to grab a pre-owned apartment in the city's downtown areas.

"Due to a limited supply of new homes in prime locations and the city's new policies, high-net-worth buyers are facing more difficulties in securing their dream houses," said Shirley Tang, senior director of Savills Shanghai residential sales. "Surging prices in the pre-owned home market indicate demand for luxury and high-end homes is high."

About 6,000 units at 18 residential projects in the city's downtown Inner Ring Elevated Road will add to the market supply this year, according to data compiled by tech news app 36Kr. The downtown, which covers about 120 sq km, is equivalent to the combined area of Kowloon and Hong Kong Island.

That addition is deemed insufficient to cater for demand in Shanghai, the mainland's financial and commercial capital with a population of about 25 million, especially following a point-scoring system that has disqualified many from buying new homes.

Prices of pre-owned homes in Shanghai rose 0.7 per cent month on month in May, according to the National Bureau of Statistics. They have risen every month since December 2019, making the city the hottest market after Shenzhen.

Tracy Li, a senior manager with a global recruitment agency, said the municipal government's measures to curb the red-hot home market had prevented many buyers like her from owning their ideal homes among new project launches.

"The scoring mechanism does not appear to be fair to every buyer," she said. "We may have to pursue second-hand homes because of the fierce competition in the primary market."

The local authorities in Shanghai published a scoring system earlier this year for new home sales to filter eligible buyers with sufficient points. The system is designed to favour households without homes and those without ownership records in the past five years.

Buyers who have contributed pension taxes for more years in Shanghai would also be accorded more points under the system.

"New homes are inarguably the top choices for homebuyers because their prices are set artificially low by the local authorities," said Song Yulin, a senior manager at property agency Baonuo in Shanghai. "Most of the interested buyers are no longer able to buy newly built flats due to their low scores."

Besides the scoring mechanism, local housing authorities also have a say in pricing new homes, setting an upper limit on prices as a way to cool the sizzling market.

Li, the recruitment agency manager, has been eyeing a new flat in the Huangpu district that sells at 160,000 yuan (US$24,726) per square metre. A similar-sized apartment in the secondary market costs more than 200,000 yuan per sq m.

"The higher price [for pre-owned home] means my family needs to spend an additional 8 million yuan for a 200 sq m unit," Li said. "That is a lot of money."

Moreover, few owners of the high-end homes at prime locations plan to sell their flats, making it harder for buyers to find units that match their preferences and budgets. This situation often leads to an aggressive bidding war, said Baonuo's Song.

The scramble has attracted the attention of policymakers, who have cautioned about market exuberance in an attempt to prevent a disaster akin to Japan's housing market collapse in the late 1980s.

China's top banking and insurance regulator Guo Shuqing has warned investors of severe losses in betting on a sustainable rally in home prices. Those who believe property prices will never fall will eventually pay a big price, Guo said at the Lujiazui Forum in Shanghai on June 9.

But homebuyers in Shanghai are not convinced.

"Nobody wants to sell their homes in Shanghai, yet more young people need to buy homes," said Norman Wu, a 30-year-old journalist looking to buy a flat before his marriage. "It is not about betting on the price movement. It is a reality that we have to buy a home as early as possible before prices increase further."

Additional reporting by Pearl Liu

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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