Shanghai steadier after 'fried rice' buyers curbed

Investing in China: Shanghai is one of the most visually obvious examples of China's property boom.

Real estate ranges from the sought-after houses dating from the French and British Concessions before the Communists came to power in 1949 to the plush villas in the newly built Pudong area, and the city's shiny retail outlets to the apartment buildings of the downtown area.

Irish property investors have not been shy about buying into the market, snapping up thousands of units. The Irish are one of the biggest western property buyers in China and a lot of that has been going to Shanghai.

"Shanghai Vision has sold over 600 properties to individual investors, mainly from Ireland. Another similar broker has sold some 500 properties to individual investors from Ireland.

"It's estimated that Irish investors have bought a further 1,000 to 2,000 properties in Shanghai and Beijing, either individually or through third-party advisors," says Andrew Slevin, executive director and general manager of Knight Frank Petty.

This is no mean figure when you consider that 7,500 were properties sold last year. Slevin, from Belfast, was addressing a meeting of the Irish Business Forum in Shanghai, a group of Irish business people which meets occasionally to foster business relationships. Normally they meet under the aegis of Enterprise Ireland but this was their first solo run and unsurprisingly property was the subject for discussion.

China's biggest city, Shanghai, has forged a path for property sales as China opens up, setting a template that has been followed in other cities around the country. But the market has also suffered as rampant speculation drove up prices, flipping properties off the plan in the kind of buying the Chinese call "chao fan" or "fried rice" purchases.

This prompted the government to introduce tighter credit controls last year to stop speculators pricing the local inhabitants out of the market.

So what is current situation like in Shanghai for Irish investors? What are they buying into? In terms of overall trends, China is becoming a safer place to invest. Property rights are recognised in the constitution, it's getting easier to get a mortgage and transferring money out of China, long a thorny issue, is becoming easier, though there are still complications.

The rules call for a higher down payment and interest rate if buying a second residential property or luxury property and commercial property loans must be below 60% of value and for a duration of 10 years.

And crucially, from now on the roof must be on before pre-sales of residential property take place.

There has been a lot of residential property coming on to the market in recent years.

"Average luxury residential prices are falling, though some have put prices up recently. Between 2003 and 2005 prices for residential units doubled and between January and October last year, nearly 65 million sq m of residential property was on the market in Shanghai, according to the Shanghai Daily newspaper.

"As long as the economy continues to be strong, there will still be demand," he said.

Rentals are still under pressure because of increasing supply in the luxury sector. In the mass market, rentals have come down as well but it's a difficult market to predict.

Overseas and out-of-town buyers make up nearly half of the buyers of luxury residential property. This indicates a high degree of speculation. Retail rental and prices have risen strongly over the last two years because of fewer restrictions on where they can locate.

The forecast is that new prices will be stable in the medium term for downtown properties due to higher land costs for developers, better quality developments, the increasing urban population and better infrastructure.

"It's all about affordability. One of the fundamentals is if a typical middle-class person in China can afford to buy it, it's a good investment. Keep the money below 5 million yuan (€500,000). Around €200,000 is a good level," said Slevin.