Shanghai Central Neighborhoods: A Class of Their Own

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

November 2008

Your humble author has been browsing through some real estate magazines such as the Shanghai Realty Information (late October 2008 issue) and came across some statistics on which he made some calculations. Here are some interesting observations:

A)      Shanghai Neighborhoods are broadly divided into the Central, East, West, and North clusters = Central embodies the 9 traditional or older districts of Shanghai such as Huangpu, Luwan, Jingan etc. East includes the popular newer district of Pudong, West covers Minhang, Qingpu etc, and North encompasses Baoshan and Jiading.

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B)      The Central Neighborhoods have the highest supply to demand ratio in terms of residential units newly built and sold at 4.64 = i.e. 1 sold for every 4.64 units built. They also supply the most units yet sell the least units of the 4 clusters. Perhaps the recent macro economic factors are starting to take a toll especially on the higher priced properties which the Central Neighborhoods collectively represent. On closer look, there also appears to be a mismatch in the unit sizes supplied and sold with developers supplying many 140m2 or more units and buyers acquiring many 110m2-140m2 units.

The ratios for the East, West, and North are 1.45, 0.76 (yes, this means the number of units sold outnumbers the number of units built for the period), and 1.38 respectively.

Central: Unit sizes

Supply %

             Supply Units

Demand %

            Demand Units

<70m2

5%

                     83

5%

                     18

70-90m2

18%

                    298

17%

                     61

90-110m2

18%

                    298

22%

                     79

110-140m2

19%

                    314

29%

                    104

>140m2

40%

                    662

27%

                     96

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C)     The Central Neighborhoods build larger units (averaging 117m2), sell larger units (averaging 112m2), and for higher unit prices (Yuan / m2 Gross Floor Area-GFA) too i.e. when sales are made = whereas the other 3 clusters tend to build smaller units (averaging around 96m2), sell smaller units (averaging 98m2), and usually for lower unit prices.  

Note the correlations between the Central [C] cluster versus the East [E], West [W], and North [N] in terms of supply, demand, and unit price. The Central cluster has little similarity to the other clusters in terms of supply distribution and demand distribution by unit size, and behaves just the opposite when it comes to unit pricing distribution. It is interesting to note the other clusters share similarities in the demand distribution by unit size.

Correlations:

R

R2

Supply C & E

(0.14)

0.02

Supply C & W

(0.09)

0.01

Supply C & N

(0.11)

0.01

Supply E & W

0.24

0.06

Supply E & N

0.97

0.94

Supply W & N

0.07

0.00

Demand C & E

0.49

0.24

Demand C & W

0.46

0.22

Demand C & N

0.41

0.17

Demand E & W

0.99

0.99

Demand E & N

0.90

0.81

Demand W & N

0.92

0.85

Unit Price C & E

(0.60)

0.36

Unit Price C & W

(0.66)

0.43

Unit Price C & N

(0.89)

0.78

Unit Price E & W

0.01

0.00

Unit Price E & N

                   0.47

0.22

Unit Price W & N

                   0.50

0.25

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D)     The Central Neighborhoods appear to be relatively least affected by the government policy of restricting the bulk of residential units to no more than 90m2 in unit size = note the higher supply to demand ratios in the other 3 clusters when it comes to units in and around 90m2.  

Speculatively, the supply to demand ratios (or any mismatches thereof) in the Central Neighborhoods could perhaps be ascribed to market supply decisions (things looked rosier 2 years ago when developers were making their decisions to build) and the current market sentiment (not overly good).

However, the other clusters do appear to indicate a more affecting 90m2 or less policy as their overall supply to demand ratios are not overly imbalanced. That is, the governmental policy appears to have caused an (unnecessary?) skew in the supply of units in and around 90m2.

Taking all 4 clusters as a whole, buyers in the Central Neighborhoods appear to fancy units of 110m2 or higher in unit size, while those for the other 3 clusters appear to like units between 70m2 to 140m2 in unit size.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

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