Shanghai property market heading towards a price bubble?

The Chinese property market has been under pressure for some time amid signs that the economy is slowing and demand for property has dipped. This has prompted the authorities to introduce an array of pro-property ownership policies although they have taken some time to impact the market and investor sentiment. However, there are signs that investor sentiment is improving with the Shanghai market in particular proving extremely popular at the moment.

This popularity is evident in the government operated property trading centres which process property deals, change of ownership, etc. So, what is pushing the Shanghai property market and why has there recently been a spate of panic buying?

Developments selling out

Amid reports that many new developments in Shanghai are selling out within 24 hours it seems that the city’s robust economy and ever expanding population is behind the recent surge in property prices. While the authorities recently announced a reduction in property transaction tax and lower down payments the majority of these new policies do not relate to top tier cities such as Shanghai. Indeed Shanghai is one of only five mainland cities in China to enforce the one property for each non-permanent resident restriction.

Is Shanghai the London of China?

When you bear in mind that government policies were introduced to assist the smaller cities which have a significant glut of property there is no doubt this change in policy will feed the Shanghai property market. In many ways this is comparable to the London property market which while part of the UK trades in a very different manner to the rest of the country.

While at this moment in time there is no sign of a reduction in demand for property across Shanghai there is no doubt that property prices cannot continue to rise at the current rate. There will come a point when investors will “think again” but if the government continues to promote pro-property policies then this may delay any price correction. To give you an example, property prices across the Shanghai district have increased by 35% in just three weeks!

Stock markets and interest rates

Stock markets around the world have been extremely jittery of late with concerns that the worldwide economy is slowing and the interest rate on savings accounts is minimal to say the least. This has prompted many to invest their savings in the property market where they see greater long-term growth and rental income. What will happen when stock markets finally recover and interest rates move back towards “traditional levels” remains to be seen but the frenzied buying of Shanghai property in particular shows no signs of abating.

One problem facing the authorities is the fact that introducing policies to assist the overall Chinese property market, which is performing very differently to the Shanghai market, will continue to feed the frenzy for Shanghai property. Whether we see the introduction of specific restrictions across some of China’s larger cities remains to be seen but at this moment in time it looks as though the Shanghai property market is headed for a potentially damaging price bubble.

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>