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Shanghai's property price has been pushed so high by foreign buyers, complains Wang Xin, a clerk of a US-based advertising company located in Shanghai.
"They (foreign property buyers) invest in luxury properties, what's more, they buy and rent common residential housing. Recently I went to massage, a South Korean slept beside me. The next day, a Japanese guy was next to me at a barber shop," he adds.
The past 18 months has witnessed a growth of almost 20 percent in Shanghai's property prices. But Shanghai's leading position for foreign property investors in the Chinese market is being increasingly challenged by Beijing.
Cities in duel
Before 2003, Shanghai's property price was much lower than Beijing's. In 2001, according to the statistics bureaux of Beijing and Shanghai, the average price of commodity properties was 5,062 yuan (US$611.35) per square meter in Beijing, but just 3,721 yuan (US$449.40) per square meter in Shanghai.
Price growth in Shanghai began to gain momentum in 2003, with property prices in the metropolis rising by 24.2 percent to 5,118 yuan (US$618.12) per square meter year-on-year. This is the first time Shanghai's real estate price surpassed Beijing's. In that year, Beijing's property price was 4,736 yuan (US$571.98) per square meter, roughly the same as in 2002.
The statistics covered both urban and suburban properties. In urban areas, Beijing's commodity price was 6,396 yuan (US$772.46) per square meter in 2003 and Shanghai's property price was nearly 7,000 yuan (US$845.41) per square meter.
Philip Wu, head of Hong Kong-based property consultant DTZ Debenham Tie Leung's Chongqing office, ranked Shanghai's booming economy, the gathering of multinational companies in the metropolis, Shanghai's hosting of World Expo 2010 and foreign and out-of-town property buyers' rising investment as major factors pushing up Shanghai's property price.
The Shanghai municipal government has proposed a series of policies to encourage property investment, including reducing property transaction and leasing taxes, simplifying transaction procedures and supporting the private ownership of former welfare housing.
"The beneficial policies, plus the brilliant prospect for Shanghai's economy and the gathering of regional headquarters of multinationals in the metropolis, have greatly stimulated people's purchasing capability," Wu told China Business Weekly.
A group of out-of-town investors, particularly those from Wenzhou in East China's Zhejiang Province, rushed into Shanghai's property market and more and more foreigners began to buy housing in Shanghai, says Stanley Chan, president of Shanghai-headquartered property investment bank Stanley & Co.
Last November, Jiao Yang, the spokesman of the Shanghai municipal government, told reporters that about 5 percent of local properties in terms of units have been bought by foreigners.
In Beijing, by the end of August 2003, overseas residents purchased less than 1 percent of properties in terms of units, according to DTZ.
In recent months, overseas residents have purchased more Beijing properties, but Chan estimated that the figure still does not exceed 3 percent.
Shanghai's advantage
While Beijing developers are struggling hard to attract the attention of foreign property investors, Shanghai remains ahead of Beijing in terms of overseas property investment, analysts say.
"To overseas property investors, Shanghai is China's economic powerhouse while Beijing mainly is a cultural and political center. Shanghai is usually the first choice for rational investors," Chan told China Business Weekly.
Most multinationals coming to China choose Shanghai as their regional or national headquarters, making some of its foreign clerks buy properties in the metropolis.
Both Wu and Chan say that a major advantage of Shanghai is more adaptive regulatory and tax policies for those foreign property buyers.
Wang Gongwei, chairman of Beijing-based developer Financial Street Holding Co Ltd, says this is also the primary reason for Shanghai to attract more multinationals than Beijing.
In addition, a greater transaction rate of second-hand housing in Shanghai attracts foreign property investors, Chan says.
In Shanghai, the ratio between sales of new properties and second-hand real estate was 1:0.98 in 2003, meaning transactions of second-hand housing were quite active.
In Beijing, the ratio was 1:0.2.
"The higher transaction rate of second-hand housing in Shanghai indicates better capital liquidity. Investors care a great deal about whether they can cash in on their properties in the short term," Chan says.
Banks are blamed for the lower transaction rate of second-hand housing in Beijing. When Beijing-based journalist Song Ping wanted to buy a second-hand house in the Asian Games Village, she was told by banks that she and the property sellers have to pay a combined 3 percent fee to obtain a mortgage.
Beijing sprints
Despite Beijing's disadvantage, local developers believe the capital is catching up with Shanghai.
Luo Gaobo, sales director of Beijing Urban Real Estate Co Ltd, says the potential for investment return, after two years of rapid growth, has been reduced in Shanghai, while stable in Beijing.
In the first three quarters of 2004, Shanghai's property price grew by 17.7 percent, continuing 2003's strong momentum of 24.2 percent growth.
In Beijing, the property price in the first 10 months grew by 5.21 percent year-on-year, much lower than the national average of 11.7 percent.
Meanwhile, a group of Olympic venues and infrastructure projects have been launched since 2003, greatly improving traffic conditions.
Wu also notes that Beijing municipal government has introduced series of beneficial policies since 2003, including halving property rental tax to 10 percent, simplifying property purchase procedures and release more property transaction information.
"I think Beijing could surpass Shanghai as the primary place for overseas property investors in the near future," Luo says.
Yet, Hao Wei, vice-president of Shanghai's villa developer Minghong Real Estate, does not think Shanghai's property market is losing potential for investment return.
"The investment return is decided by how strong the demand is, instead of how high the property price is. We have booming sales and investors have had good returns," Hao told China Business Weekly.
Chan adds that if Beijing wants to replace Shanghai's leading position in terms of foreign property investment, the government and local banks have to increase their support to transactions in second-hand properties.
Beijing developers should also increase their property management level. In Shanghai, property management is mainly conducted by professional firms, while in Beijing, the job is generally taken on by developers.
"The situation has to be changed if Beijing wants to get money out of foreign property investors," Chan says.
(Business Weekly January 6, 2005)
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