Shanghai Housing Market

China's real estate industry witnessed a fast growth in 2001, becoming one of the driving forces of the country's economy in the period. According to the National Bureau of Statistics, last year funding for real estate development increased by 25.3% over the previous year to RMB 624.6 billion (USD 75.25 billion). Zeng Peiyan, Minister of the State Development Planning Commission, claimed at a press conference early this year that unlike the bubbles seen in the real estate sector in early 1990s, the real estate development in the last two years has been healthy. Noticeably, housing industry has played a key role in stimulating the real estate development and domestic demand. It shall continue to show a great potential in the next few years, according to the national Five-Year planning.

At the national meeting on housing reform held on Feb. 8, 2002 in Shanghai, officials from the Housing and Real Estate Department under the Ministry of Construction urged that all the cities should work out their monetary housing subsidy plans by the end of March and carry out housing reforms based on the plans. Since the real estate markets vary from city to city, some places are far delaying their plans, but Shanghai is well ahead and is recognized as having a comparatively mature housing market. Housing authorities from the cities in the western area are all studying the experience of Shanghai in order to work out their own local recipe.


I. Housing Development in Shanghai in 2001

Mrs. Li Juanjuan, key official from the Shanghai Municipal Housing Administration Bureau, said at the Shanghai Housing Industry Briefing in March, that the city's housing industry has now entered a vibrant stage after undergoing three successive periods.

Before 1997, the local authority did not pay attention at all to integrate planning. After 1997 the situation started to change and planning got more and more attention. A series of policies were gradually published by 1999 in the hope to stimulate the housing market. The most impressive incentives included individual income tax refunds and monetary housing subsidies. Both policies set precedent in the country. With this reform, people began to cater for individual purchases on houses and apartments instead of getting them from work units. Besides, the city has also scrapped many transaction fees and eased the formalities. As a result, not only the first level market but also the second-hand housing market have been activated. Even more foreigners and Chinese from outside Shanghai have been attracted to purchase houses and apartments in Shanghai.

The following charts can demonstrate the achievements and features of Shanghai's housing industry in 2001. ("Shanghai Statistics" published by Shanghai Statistics Bureau)

1. Intensive investment with new structure

In 2001, the city's real estate investment soared 9.6% over the previous year to RMB 62.03 billion ( USD 7.473 billion) and accounted for 31.3% in total fixed assets investments.

Most of the investment was absorbed by housing construction, as shown in the following chart.

Breakdown of Shanghai Real Estate Investment in 2001

 
2. Demand-supply Balance

Last year, 17.58 million square meters were completed for commercial purpose, in which housing area accounted for 15.67 million square meters. The total sales of commercial buildings amounted to 17.67 million square meters, including total housing area of nearly 16.48 million square meters. Compared to the supply, demand was at a slightly higher level. The figures in the following table show the balance between housing supply and demand.

3. Housing market is upbeat

Much different from Beijing where housing prices are highest in China, 96.7% of the sold housing area in Shanghai have been bought by individuals rather than enterprises. This phenomenon can be attributed to the following aspects:

• It is widely known in China that people in Shanghai are always keen on improving their living conditions and thus have cultivated a special favor for housing purchases. Some surveys imply that most Shanghainese give priority to investment for an apartment or a house while Beijing people prefer to purchase a car first.
• The city's steady economic growth has been pushing forward the city's renovation work and urbanization progress. Development work such as the"1 City 9 Towns (satellite cities) Project" and the "Huangpu Riversides Development Project" will bring radical changes to the overall environment by not only putting up new business, culture and public facilities, but also erecting new apartment buildings and houses.
• All in all, the local authority has successfully implemented a package program that has effectively stimulated the housing market, including financial schemes and open-up policies. According to the figures released by the Shanghai Real Estate Exchange Center, (China Economy Net,25/01/2002), foreigners purchased 2'973 apartments in Shanghai in 2001, more than three times the figure for 2000; Chinese from outside Shanghai bought 24'000 apartments, double the number of the year 2000.

The following chart comparing the second-hand housing market in Beijing, Shanghai and Guangzhou may display the openness and easiness of the housing market in Shanghai from another angle.
 

II. Market Demand: hi-tech and environment-friendly building materials and construction technologies

Though keeping very positive about the future housing market, the Shanghai Housing Municipal Administration Bureau has attached serious attention to the need of vastly improving the construction quality. At the briefing meeting on the Shanghai housing industry, Mr. Wang Wenzhong, ex-director general of the Bureau and the chair of newly-established Shanghai Housing Industry Development Association, claimed that the long-term objective of the Shanghai housing industry would be not only to enlarge construction area but also to enhance the quality with regard to planning and construction. In five years, the real estate industry, mainly represented by the housing industry, shall continue to be one of the six pillar sectors of the city. It is hoped that in the end Shanghai will be recognized by both domestic and overseas residents as a human-friendly city for comfortable living.

The current quality of houses and apartments in general are not very satisfactory as contractors use material with low technology. In consideration of the mandatory schemes stipulated by the Shanghai Housing Municipal Administration Bureau, it is getting more urgent to introduce new material and technology that is energy-saving and environmentally friendly. By 2005, all housing developers must fulfill the following requirements:
· to build decorated housing
Initiating decorated housing with sales of nearly 30'000 units last year, the Shanghai Housing Municipal Administration Bureau has scheduled that by 2005 all housing should be decorated instead of semi-finished. Homebuyers can choose the decoration style in the material menu provided by housing developers. Suppliers recommended in the menu have to be evaluated and authorized first by the Shanghai Housing Municipal Administration Bureau.
· All housing must meet the standards of intelligent buildings.
· All material for wall must be energy-saving and thermal insulating.

In detail, the city hopes to introduce more foreign supply and co-operation in the following fields:

1. wall material

Clay brick is officially banned in use throughout the country. Currently porous bricks are mainly used in construction yet will be banned as well someday. Thus, air brick technology is called for. There is only one German joint venture in Shanghai manufacturing air bricks. Although having undergone difficulties since its establishment four years ago, the joint venture is picking up business thanks to the government direction on air bricks.

2. thermal insulating material for walls and windows

The external walls of many buildings are covered with steel reinforced concrete and concrete mixture, thus have little capability to preserve warmth and insulate heat. While the city consumes around 50 million tons of coal annually, buildings dissipate about 12 million tons of coal, nearly one forth of the total.

Thermal insulation material that can be applied to external walls is preferred, since internal application will lessen the usable floor area. The ideal wall complex shall consist of air bricks and tiers of water-proof and thermal insulation material.

The same is valid for windows. Most windows do not have good thermal insulation performance. None meets the standard of heat conductivity factor 7. Thought unable to make a thorough change right now, but in the end the local authority will enforce that all windows to meet thermal insulation criteria.

3. decoration material

Traditionally the housing that people buy is only semi-finished, hence homebuyers have to hire a contractor to finish interior decoration. It is not only a tiresome investment of time and money. Sometimes it can be an incredible headache, for most homebuyers lack knowledge and power to judge the quality of both the
decoration work and the decoration material. Last year, decorated housing appeared in Shanghai for the first time. 30'000 units were sold and this year sales are expected to reach 100'000 units. Finally by 2005, the semi-finished housing will no longer exist in Shanghai.

The Shanghai Housing Municipal Administration Bureau controls the quality of mandatory decoration work by publishing a "Catalogue of Government-Recommended Decoration Material". To put it in a nutshell, building material manufacturers must first apply with the Bureau. Then the Bureau, together with the Housing Industry Development Association, will organize a team of experts to appraise the quality of applied products in accordance with certain criteria. If the products are up to the standards, they will be insured by insurance companies and promoted by the government to homebuyers via housing developers.

Homebuyers can set the decoration style by selecting the specific decoration material from a list. According to Mrs. Li, the government welcomes more foreign building material suppliers with really advanced products to apply for being listed in the catalogue. At present, homebuyers do not have enough options. For example, there are only two suppliers of so-called "green paint", and just one supplier of kitchen sets (Haier, famous brand from Qingdao, Shandong province) recommended in the catalogue.

4. heating and cooling system

In many buildings, air conditioners are approaching the end of depreciable life and should be replaced. New types of AC systems with environmental protection technology will find favor in the market.

5. utilization of solar-energy and geothermal energy resources

The problem frowned upon by the government is how to accommodate the utilization of solar and geothermal systems with the specific features and demand of housing construction in Shanghai. Some Canadian architecture institutes tried but failed to work out a cost-efficient proposal.

6. re-use of household discharged water

Shanghai is a city lacking water and land resources. Recycling of used water is a way to economize on water. There are various ways to treat used water discharged from household, such as physical, biochemical and biological processing. In one residence, "Olympic Garden", such a recycle system has been applied but only for use in centralized irrigation and cleaning. Occupying too large a space, such systems are not suitable to a city like Shanghai with her lack of land area. What is needed is a small household appliance that individual households can reclaim the water and reuse it to clean the car, irrigate the garden and flush the toilet etc.

7. elevators

Shanghai is becoming an aging society as 2.466 million people are already over the age of 65, while in 2000 the figure was 1.93 million, accounting for 11.53% of the city's total population. Most of the senior citizens are living in old buildings with 5 to 7 stories. Therefore, elevators that are not expensive and can be added outside the buildings will be demanded in the renovation projects implemented by the government.

8. relevant Insurance Service

In addition to importing new building material, the authority also intends to involve foreign insurance companies to insure building materials and housing performance following government certification. As mentioned above, insurance is involved in governmental recommendation of decoration material to homebuyers of decorated housing. However, no insurer so far has launched the service for commercial housing.


III. Useful addresses

Switzerland is strong in the building material sector and always attaches significance of the environmental protection to the development of new building materials and technology. The new-technology-oriented trend taking place in the housing market of Shanghai shall be a good opportunity for Swiss suppliers to promote Swiss-quality products and technologies. The above listed products fit very well with the advantage of Swiss building material industry. Swiss suppliers can play a more active role in this market and have a deserved share of the cake. Interesting companies may refer to the following contacts and addresses:

1. Responsible authority and organization

- Shanghai Housing Municipal Administration Bureau
Address: No. 99 Beijing Rd. (W), Shanghai 200003
Tel. +86-21- 63 19 31 88 Fax. +86-21- 63 19 30 05
Responsible department: Housing Industry Development Department
Contact person: Mrs. Li Juanjuan, director

- Shanghai Housing Industry Development Association
Address: No. 99, Beijing Rd. (W) , Shanghai 200003
Tel. +86-21- 63 19 31 88 Fax. +86-21- 63 19 30 05
Contact Person:

2. Relevant exhibitions to be held in Shanghai this year

China International Housing & Building Expo 2002; China Intelligent Building 2002
November 26- 29, 2002, Shanghai International Exhibition Centre
Organizer : Shanghai International Exhibition Co., Ltd.
Address : 4F, No. 28 Jinlin Rd. (W), Shanghai 200021
Tel. +86-21-63 87 28 28, Fax: +86-21- 65 45 51 24
email: siec@stn.sh.cn
Ctc. Mr. Li Zhengkang,

Freda Wang
Shanghai, April 30, 2002

15.5.2002

Consulate General of Switzerland
for business related matters, please reply: sha.vertretung@eda.admin.ch