Gains on cards for high-end property sector in Shanghai

Apartments, villas with small floor area to offer better rental income for investors, say analysts

Demand is likely to increase through 2017 in the high-end residential market in Shanghai as buyers' needs shift and investor sentiment recovers with the improving market climate, property services provider Savills said in a report on Tuesday.

"As Shanghai's central business districts emerge in various areas in the city, demand for high-end residences in such regions has been growing fast. We estimate that the average price and sales revenue of high-end residences may increase in the next few years," said Siu Wing Chu, head of residential sales with Savills in Shanghai.

As of Dec 31, sales of high-end residences accounted for 9 percent of the market in the city, compared with 1 percent in 2005.

Chu said sales of existing high-end residence projects, including villas and large apartments in premier locations, began recovering during the fourth quarter of 2014.

The number of wealthy Shanghai residents, defined as those with a net wealth of more than 10 million yuan ($1.62 million), has been rising steadily and now reaches 160,000, which increases purchasing power in the high-end residence market, according to Savills.

In 2005, the highest price for an apartment was 60,800 yuan per square meter. As of last year, the figure had risen to 242,000 yuan per sq m.

Demographic changes and urbanization have created demand for high-end residences, with the younger generation favoring apartments with mature facilities including shopping and schools.

The elderly prefer more spacious, suburban villas, according to Chu.

"I think the most important factor for me when deciding where to buy a spacious apartment was whether the district had a nice school that my daughter would love to attend, as well as a park or a lake that helps improve the air quality," said Sun Jingbo, a 42-year-old home buyer.

Analysts said that apartments and villas with relatively small floor areas may perform better for investors.

According to Dooioo Property, a Shanghai-based property service firm, rental yields for high-end units of less than 200 sq m may be double those with areas of more than 500 sq m.

High-end properties in first-tier cities－Beijing, Shanghai, Guangzhou and Shenzhen－are still among the "best choices" for investors, said experts.

The highest average price of a residential project in Shanghai is about 173,000 yuan per sq m, while the figure is 113,000 yuan in Beijing and 98,000 yuan in Guangzhou.

In Chengdu, one of the largest second-tier cities, the figure is about 30,000 yuan.