More compact high-end abodes, albeit still scarce, are captivating Shanghai’s luxury home hunters, who are usually accustomed to a market filled with spacious residences.
Often situated in hip, downtown neighborhoods, these under-200-square-meter homes could attract young buyers, according to Savills China who represents several Shanghai luxury residential properties.
Among the properties in its portfolio is the Fuxing Royale, an apartment compound in downtown Shanghai’s Huangpu District that will complete construction in the second half of 2017 with around 90 units less than 990 square feet. The 600-apartment property nearly sold out all of its first batch of smaller one- and two-bedroom units within its first week on the market back in June 2015.
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According to some reports, Shanghai’s luxury homes are shrinking in size across the board. A Shanghai-based real estate research center, E-house China R&D Institute, found that the average size of Shanghai luxury homes sold in the second quarter of 2016 was 172 square meters (around 1,800 square feet), a decrease of almost 11% compared to the year before. The institute reported 193 square meters (around 2,000 square feet) as the average size of Shanghai luxury homes sold in the second quarter of 2015.
Fuxing Royale sold out its popular smaller units more than a year before the project’s completion scheduled for the second half of 2017.
Savills Real EstateBut many experts point to how difficult it is to define "luxury" in Shanghai. That’s because prices are rolling up faster than the Shanghainese can keep up with resetting their market measurements.
Shanghai has seen such an influx of substantial housing deals that 2015 was nicknamed "Year One of Shanghai Luxury Real Estate." Hong Kong-based Centaline Property Agency reported that in the first half of 2016, 1,597 homes over CNY 20 million (US$2.88 million) were sold in Shanghai.
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Economist Nie Riming, a researcher and associate president at the Shanghai Institute of Finance and Law, said the skyrocketing market had elevated many smaller, modest apartments into the luxury price bracket, which may have resulted in the appearance of shrinking luxury home sizes.
"Some developments that were not considered as luxury in a traditional sense are now worth over CNY 15 million (US$2.18 million)," said Mr. Nie.
A Changing Market in Shanghai
But things may change soon.
In fact, citywide mortgage rules implemented in March and November strive to calm the overheated market. Under the new rules, second-home buyers with previous mortgages must make a down payment of either 50% or 70%, a new reality that Mr. Nie believes could hurt luxury sales.
"There are a lot of rich people in China. But few have that much cash on hand for real estate," Mr. Nie said. "Such strict mortgage policies will strike down market demand."
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Policy makers have already seen desirable results in terms of stabilizing the market price. In November, Shanghai’s 19-month consecutive price increase came to a halt. Average November price of newly-built open-market residences dropped by 0.1% compared to October, according to the National Bureau of Statistics of China.
"The new policies will have an impact on the premium housing market," said Shirley Tang, senior director of Savills Shanghai Residential Sales.
Ms. Tang added that "New regulations restrain some families that otherwise would have been able to upgrade their homes," making their dream homes unobtainable.
Ms. Tang, who oversees the sales of several Shanghai high-end developments, including the downtown Fuxing Royale, said that the smaller units there is a special case, not necessarily a sign of things to come.
"90-square-meter apartments only make up around 15% of the entire project," she said. The majority of premium condos her firm represents are units larger than 200 square meters, which are the dominating commodities of the Shanghai luxury market, according to Savills.
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Pondering Smaller Units
It's undeniable that smaller luxury units are popular items among ravenous buyers. But these projects demand complex planning. Shanghai real estate developers battle with meager downtown land resources and increasingly arduous government vetting.
"Some developers did ponder the ‘small’ option, but to build these projects in downtown Shanghai is a very daunting task," Ms. Tang said.
"Out of downtown, small-sized luxury would lose its appeal," she said, "so many developers are wary about diving in."
Fuxing Royale’s prime location and smaller units target successful young professionals.
Savills Real Estate"Small high-end units target successful young professionals," she added."But because of limited buying opportunities restricted by law, the bulk of luxury investors still prefer bigger units to maximize future value."
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At the same time, "compact luxury" could have market potential as affluent buyers flock back to the city.
Real estate broker Wang Donghao from Hangzhou, once the priciest residential real estate market in the nation, said people’s impression of luxury is evolving.
"Before, roomy suburban houses were symbols of success. But trailing infrastructure and taxing commutes are driving people back to the city center. The new badge of success is a downtown apartment," said Mr. Wang. He added that modern, space-efficient designs also make compact homes an easier sell.