I saw this article in ShanghaiExpat, and I think it’s very informative.
Understanding Shanghai’s Rental Market
Shanghai’s downtown housing supply grows each year with more and more buildings popping up around town. For the newcomer it must seem overwhelming and many can’t work out why the differing asking prices for what seem to be similar properties. But understanding why is not so hard if you know a bit about the recent history of real estate in this city.
When I came to Shanghai in 1994 to work in real estate, there was limited expatiate housing and no local housing at all. In such a short period we have seen an under supply of expatriate housing to an over supply, then an under supply of local housing to an over supply. Mind you, good quality attractive local apartments are still hard to find and are snapped up quickly. When looking at the housing market in Shanghai it helps to keep in mind that in communist societies, the government and not the people own property so real estate is a recent concept in new China. Therefore, like most things in China, the market is still in growing and in transition.
Early Expatriate Housing
When expatriates first started coming to Shanghai in the 80’s, they were not allowed to live in local government housing, not that most would want to. Most expatriates lived in government hotels, a few government approved apartments and guest houses. In the late 80’s and early 90’s hotels like the Portman, Hilton, Holiday Inn, Sheraton and Yangtze Zhang were built and filled with expatriates waiting for compounds to be completed.
Apartments at the Portman and Longbai had six month waiting lists and villas and apartments were filled when they were completed. Some of the first villa compounds were Elegant Garden, Hong Qiao Villas and Hong Mei. The government utilised the sprawling grounds of the Xing Guo, Hong Qiao, Rujin and Xi Jiao Guest Houses and built the extremely popular Canadian prefab villas in them. The western styled interior was just what we wanted; sighs of relief on inspections clarified this. There were a few villa compounds that were so poorly designed and fitted out that no-one wanted to live in them.
And then there was Gubei. This site purportedly had a quarter of the world’s cranes. I never actually counted them, but there were lots. They rose in the dusty horizon like huge dinosaurs and built tower after tower. When it was completed we were thrilled to have some chinese/western styled apartments.
In those days, most expatriates were senior managers with families or couples who were on expatriate housing allowances which covered the asking rental. There was limited supply of expatriate housing so often we had to pay close to what was asked or we’d loose out to another expat. The compounds were all built by developers, mainly from Hong Kong. Some villas like Hong Mei and Hong Jin were bought by individual landlords from Hong Kong, Taiwan or the US. They bought them totally bare and fitted them out as they liked. Interiors were basic and the quality was poor but it was home to us all.
Local Chinese couldn’t own property until 1999 so developers pretty much controlled the housing market. They either rented out the property directly or sold it off to mainly overseas Chinese who rented it out at a slightly lower asking rental.
Local Chinese lived either in the old government six storey blocks which had basic living standards or the high rise towers built in the 80’s. The poorer lived downtown in the ghettoes which have no bathrooms, toilets and communal kitchens. Sadly, many still do.
When Chinese were finally permitted to buy apartments most were low quality affordable blocks. Apartments were sold as a concrete shell and the owner fitted and furnished it out to suit his budget and personal taste. Most bought to live in and some bought to rent out mainly to expatriates. Unfortunately at that time there was limited understanding of what furnishings and décor expatriates preferred and most apartments didn’t suit our tastes. Sadly, this situation still remains today however, some savvy landlords have been doing their homework and we now have some good local apartments coming onto the market.
Some developers nowadays sell newer blocks with simple but tasteful kitchens and bathrooms already fitted out. If you can find an apartment where the landlord hasn’t bought furniture it is a huge plus. The landlord will give you a budget to buy furnishings and you can decorate it to your own individual taste (with in reason).
There are varying reasons as to why prices differ so greatly in apartments in Shanghai. Firstly, if it is a developer compound then you have to look at the quality, age and style of the building, its furniture and fit outs, facilities, popularity and current availability, its location, competing properties close by and its management. These factors all go into determining the asking rental.
A private landlord may not want to lower the rental due to the following reasons:
The property is of good quality
Landlord has better offers in hand
Landlord not in hurry to rent out property
Landlord may believe property is of certain value
Landlord may not want to pay full commission
The agent’s lack of experience in negotiations
The agents need of a high commission
A prospective tenant’s terms and conditions of leasing will also affect the final rental price. Here’s how you can assist in getting a lower rental:
Pay rent on quarterly basis
Don’t request for extra items
Don’t ask to remove items
Pay rent in USD
Sign a longer lease term than requested
Take the property unfurnished (if not furnished)
Commences the contract as soon as possible
Don’t get an official tax receipt (Fapiao) unless necessary
Older developer compounds
More and more expatriate’s housing packages are being reduced or removed completely and many feel they have only local housing to choose from. But, some older developer compounds have been sold off to individual landlords and can be a good compromise if you don’t want to go too local The benefits are you get a good quality building, albeit with older furnishings and fit outs, well trained english speaking management, good locations and you don’t have to worry about the renovation noises some new complexes have.