First a little background. Like the Chinese stock market, the Chinese real estate market has a brief history and I talked it a bit in my previous E-House post. Also, China is a big country and the real estate market varies by region, for instance, the Shenzhen market is cooling down lately while Shanghai market is becoming hot. Very much like in the US we could see Dallas and Seattle are still doing ok, while California, Las Vegas etc. are cooling down now.

The picture above is taked from Vanke White Horse Garden in Shanghai (courstey of soufun.com, for more pics click here).

With that in mind, I am talking about my understanding the Shanghai housing market, in Q&A style.

1) Why the price went up so much lately?
It’s mostly supply and demand. The new supply is very limited in 2005 and 2006 because: the prevailing prices did not spur interest from developers to build new homes; the new supply of land is very limited.

Regarding demand, it’s driven by: people who buy and live in; people who buy for investments (for rental income, or for capital appreciation). Note it’s hard to make enough rental income to cover the mortgage interest these days as the banks here are raising rates. I think it’s safe to assume that investing people are expecting to get return from “housing price go up”.

2) Can anyone buy a house in Shanghai (I mean legally)?
There is a new rule to limit foreigner to buy house here. The new rule states that the buyer need to work/live in Shanghai for at least a year, and can only buy ONE house.

3) Why downtown is hotter than suburban?
Conveniece especially transportation. Downtown areas such as Zhongshan park is covered by more than one subway or railway. It’s the most efficient way to get around town in Shanghai because of the congestion of surface traffic, especially in rush hour.

4) Why most new homes come “raw”?
My understanding is in the past people want to customize their own home: I mean people want to pick their own bath tub, wall painting, etc.

Lately some developers are offering “finished” apartments to meet the needs of some high end customers, and some white collar workers who don’t want to customize their bathroom.

5) Why people chase unfinished new house while neglecting existing (old) homes?
This is a complex issue. I think one reason is the new houses have better quality and usually are designed better to meet people’s need.

Another reason, is goverment raised the tax for 2nd hand house trading. Although the initial intention was to limit people to flip the house, it raised the cost for “buy and live in” people too.