The New Decadence

Whether it’s Swarovski crystal or designer boutiques, Shanghai’s newly affluent have embraced consumerism as enthusiastically as their 19th-century counterparts reached for the opium pipes. Shopping is definitely the new decadence.

With air-conditioned malls and flashy department stores, the city’s premier shopping street is Nanjing Lu. It’s partly closed for pedestrian traffic only, and at night the neon-lit signs dazzle as brightly as those in Hong Kong. Prices for Western designer brands seem even higher than back home, but you can get great buys on shoes. While I was browsing, my husband picked up stylish leather loafers for the equivalent of $13.50. One big annoyance is the hordes of fake Rolex and Prada handbag merchants that attach themselves like limpets to any passing Westerner. 

“Boo yow”—I don’t want it. If you learn only one Chinese phrase, this is a good choice.

More popular with locals, Huaihai Zhong Lu is another major shopping street arrowing through the French Concession area. If you’re still not satiated, take the under-river train through the weirdly psychedelic Bund Tunnel to Pudong. You’ll emerge almost beside the monumental Super Brand Mall. With a floor of restaurants, juice bars, and coffee shops, it’s also a great place for lunch. I paid less than $5 for a noodle hotpot and a beer.

For items like silk, calligraphy brushes, porcelain tea sets, and handicrafts, the best buys are often in the markets. But if you’re looking for jade or antiques, be careful. Guidebooks warn that at least 85% of goods at Dongtai Lu Antique Market (on the eastern edge of the French Concession) are fakes. 

Before buying any high-value item, take a look at the genuine objets d’art in the state-run Shanghai Antique & Curio Store (196-246 Guangdong Lu). Prices are high, but you’ll get an idea of what a real porcelain vase or jade dragon should look like. But note that you may have to relocate to enjoy your treasures. Genuine antiques more than 200 years old cannot be exported out of China. 

Mao memorabilia is everywhere. I succumbed and paid 5 yuan (60 cents) for a red-tasseled dangly thing with a portrait of the Great Helmsman embossed in gilt. I undoubtedly possess the tackiest car decoration in the west of Ireland.

Expat Encounters

Although competition is far fiercer than a decade ago, some individuals have carved out a Shanghai niche for themselves. One evening, I met IL subscriber Mario Cavalo in a French Concession bar called Senses, with low lights, comfy couches, and an extensive wine list.

When not indulging his passion for playing jazz piano (catch him on the keyboards at Senses on Thursday evenings; the bar is at 515 Jianguo Xi Lu near the American Consulate), Mario arranges conferences and corporate training. He’s set up his own company, Vision to Victory, and his latest gig is for Shanghai’s German Chamber of Commerce. He’ll be taking clients to the silver-sand beaches of Sanya—the premier resort on Hainan Dao, China’s tropical vacation island.

To be a successful entrepreneur, you’ll need to emulate Mario and learn Mandarin. Although TEFL (Teaching English as a Foreign Language) teachers are keenly sought throughout China, merely having a degree and the ability to speak English isn’t a guaranteed passport into Shanghai’s job market. For one thing, huge numbers of home-grown graduates who have learned English are now in the workplace. 

Most expatriates are on company assignments. Management-level employees usually get “the full expat package,” which includes private health care, luxury-level rental accommodation, and private schooling for kids. Dawn Brandenburg of Savills Property Services estimates that Shanghai has between 50,000 and 60,000 Western expats, 100,000 Japanese, and another 200,000 “compats” from Hong Kong and Taiwan.

Speculator Beware

As I write, Shanghai’s property market is effectively on hold. Prices have slipped by 20% to 30% in the last few months. A buyer’s market could emerge, but right now, many apartment blocks remain empty. Locals call them “lights-out” buildings—the units are owned by speculators who expected to make shed loads of money by flipping. They didn’t envisage becoming landlords—and some residential buildings in Pudong’s Lujiazui area remain empty of tenants. 

Until the market comes to terms with a raft of new regulations designed to deter speculators (detailed in the sidebar on page XX), potential investors are advised to take a wait-and-see view. Certainly that’s what developers at the luxury end of the market are doing. Construction has slowed right down, and a number of developers have decided to sit on new projects rather than release them.

Hot housing markets generally go hand in hand with hot economies and Shanghai’s had reached sizzling levels. In the downtown area, last year’s average rise was 27%. But over the past two years, the city’s most desirable pockets have seen increases of 200%. 

Before central and municipal governments introduced the new regulations, apartments around the Xiantendi neighborhood of the former French Concession got snapped up as soon as they were offered for sale. Even in a cooling market, you’ll find little around here for less than $500 a square foot.

Until the reforms, Shanghai had China’s most shocking housing prices. In the first quarter of 2005, the average square foot cost was around $120. Completely unaffordable for the majority of citizens whose annual salaries only average $2,700. 

Due to earlier housing initiatives, many Chinese effectively own the homes they live in. However, first-time buyers on low incomes couldn’t afford to buy. So, on June 1, the Shanghai authorities chucked a mega-sized bucket of cold water over the market. Foreign speculators have been chased away—and local investors who took out mortgages and bought at the peak can only lick their wounds.

English-language online news sites such as China Daily (website: www.chinadaily.com.cn) regularly quote from eHomeDay.com, which issues monthly statistics on Shanghai’s housing market. (Unfortunately, the site is only in Chinese.) If the news agencies are right, the square-foot price for many new condominiums in the city’s suburbs has slumped from $200 to less than $160. Average for Shanghai as a whole is now $95 a square foot, but this price includes a lot of housing in places you wouldn’t dream of living. 

A city of Shanghai’s size has huge price variations. Looking at ads in City Weekend (www.cityweekend.com.cn), a listings magazine, many apartments in Puxi (the downtown center) are still pitched between $310 and $470 a square foot.
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Near Hongqiao domestic airport, Savills Property Services are handling second-phase sales of the Shanghai Racquet Club & Apartments. (Phase one comprised 193 units, the second phase has 216 units.) Prices average $200 a square foot—apartment sizes are 2,300 to 3,500 square feet. Monthly rents are $4,800 to $6,800. 

First-phase apartments were smaller: 1,400 to 3,000 square feet. Starting rent for these—there’s an occupancy rate of 95%—is $2,500 monthly. Facilities include tennis courts, indoor swimming pool, gym, and squash court. The Shanghai American School is a short walk away. 

But Dawn Brandenburg of Savills residential department confirmed that the luxury-end market has also suffered shocks. From the last quarter, their own sales have dropped by 50%. Savills Property Services (Dawn Brandenburg, Associate Director Residential), 20th Floor, Shanghai Central Plaza, 381 Huaihai Middle Road, Shanghai 200020; tel. (862)163-915-251; e-mail: DBrandenburg@savills-sh.com; website: www.savills.com.

Property Predictions

I tried hooking up with Sam Crispin, another Shanghai-based expat who writes property columns for English-language publications. Unfortunately, Sam was out of town during my visit, but his recent articles make interesting reading. 

Writing in the China Economic Review, Sam expects the market to be quiet until downward price adjustments are sufficient to draw buyers back. This could take three to six months. “But owner-occupiers will continue to buy during this period, albeit at a slower, more cautious rate.”

Sam also writes that in areas that attract owner-occupiers, assets should see little more in the way of price falls. “The sort of property that attracts owner-occupiers also attracts tenants...prices tend to be underpinned by rental income.” 

But with few buyers around, some of Shanghai’s newer agencies are closing. (More than 1,000 brokers have left the business since May according to City Weekend.) This could explain why Savills was the only one who replied to e-mail requests for a meeting—I contacted seven. 

One shy-to-reply agency was Space (www.space.sh.cn). This was disappointing as it’s an American-managed agency specializing in historic French Concession properties. One of their cheaper properties—a penthouse of 1,000 square feet with a 400-square-foot loft with “green views on all sides and zero noise,” costs $467,400.

The Rental Market

You can rent two-bedroom furnished apartments—renovated and with Western comfort levels—for $700 to $1,000 monthly. But CEOs and general managers of multinationals have expectations that include clubhouses, gyms, swimming pools, etc. Average monthly rents in the “expat package” apartment sector stand at $2.40 per square foot.

With few new luxury developments coming on stream, there’s now a shortage of top-range rental property. And rates are climbing. Savills says average renewal increases are already up $500 to $1,000 on a $6,000 monthly lease. 

Despite those “lights out” apartments in Lujiazui, occupancy rates in the niche foreign rental market are high. According to Savills, it averages 93% for luxury apartments and 95% for villas. The most desirable locations have waiting lists. 

Where Most Expats Rent

In general, expats without families gravitate toward downtown Puxi. Here you’ll find newly built modern high-rises as well as late 19th-century colonial property in the former French Concession. Rentals for renovated lane houses (1,700 square feet) start at around $3,500 monthly, but can reach $7,000 for larger properties.

With historic stone buildings converted into shops and restaurants, Xiantendi is a French Concession enclave. Its name means “New Heaven on Earth.” A step away towers the new Jin Lin Tian Di apartment complex—here rents are $5,500 to $8,000 per month. The smallest unit is 2,600 square feet. The financial giant Morgan Stanley bought a number of apartments when the complex came on the market.

Families prefer proximity to international schools. These are mostly in the western suburbs of Changging District or east of the river in the far reaches of Pudong District. Both areas are a 30- to 45-minute drive from downtown.

Developed in the 1990s, the Changging District is a major expatriate residential area, particularly the Gubei neighborhood, which has a branch of the French-owned Carrefour supermarket. The housing mix includes apartments, stand-alone villas, and gated villa compounds. Two- and three-bedroom apartments of 1,150 to 2,800 square feet are mostly $1,450 to $3,000 per month. Top-end three-bedroom apartments can command $4,500. As there are also some “lights out” highrises here, rents may fall.

Home to Shanghai’s second-largest expat community, the Pudong District has seen plenty of recent development activity. There are apartments around the financial center, but much of its housing is high-rent villas, often in gated communities. Starting rent for a 2,600-square-foot house with a small garden is $3,500 monthly. A 3,600-square-foot villa in a compound with gym and swimming pool can be $6,600 or more.

Savills cite average rent for Pudong villas as $197 a square foot per month, with luxury villas more like $223 a square foot. 

A number of rental agencies advertise in City Weekend, an English-language magazine published every two weeks. Judging by the size of their ads, two of the largest are Phoenix Property Agency; website: www.shanghai-realty.com and Oxford & Associates; website: www.jiayide.com.

Sidebar: New Property Rules

China’s central government has introduced a nationwide 5% tax on profits for investors who resell within two years of purchase. Local authorities have a certain amount of autonomy, and Shanghai’s municipal government imposed a tax of 5.55% on those reselling within one year.

In June of this year, Shanghai’s local government also implemented a new capital gains tax on detached and semi-detached houses—the villa market. Based on profit returns, it ranges between 30% and 60% if you sell within three years of purchase. For properties sold between three and five years after purchasing, the tax rate is halved. A property sold after five years is exempt. 

Shanghai has also doubled the property tax to 3% on luxury homes. These are defined as homes in the city center costing more than $215 per square foot, and larger than 1,400 square feet. For cheaper and less spacious apartments, the previous rate of 1.5% remains unchanged.

Shanghai’s citizens are now prohibited from taking out second loans before repaying any first one. Interest rates were also raised to a minimum 5.51%. 

There was also initially a recommendation by the Bank of China to stop developers from selling new projects in Shanghai off-plan. Although this was dropped, it didn’t prevent developers from getting the jitters.

Sidebar: The Big Ownership Question

Regulations regarding ownership remain unchanged. China is a communist country; the government owns all land on behalf of the people. Individuals cannot own property on a freehold basis. 

Whether it’s an apartment or a villa, the best you can do is take out a 70-year leasehold on a property. What happens when the 70 years are up? Your guess is as good as mine—or that of anybody else involved in China’s property market. Maybe China will follow Thailand’s example and extend leases, but it’s impossible to say for sure. Current policy seems more about regulating market prices rather than setting any long-term agenda.

Sidebar: Take Your Earplugs

The three-star Metropole Hotel seemed a good choice when I booked a double room for a discounted $81 through www.hotels.com. (Shanghai hotels are expensive.) Built in the Art Deco 1930s, it’s less than a 10-minute walk from the Bund’s riverside promenade. Unfortunately, its sound-proofing is disastrous. The cacophony of horn-blaring starts before first light. Bicyclists, peddlers with handcarts, a tailback of cars heading toward People’s Square…each frustrated driver seemed intent on making enough noise to wake an entire neighborhood of ancestral spirits. 

Sidebar: Useful Shanghai Online Resources

www.shanghaidaily.com
www.cityweekend.com.cn
www.shanghai.gov.cn
http://shanghaiexpat.com
www.china.org.cn
www.chinadaily.com