Luxury homes get smaller as property prices go up

A big trend toward smaller things is well underway in Shanghai's luxury real estate market.

Stratospheric housing prices in the metropolis are forcing developers to downsize high-end properties to make them more affordable.

"Shanghai's luxury real estate market today is replicating the story of Hong Kong," says the Shanghai office of Hong Kong-listed China Overseas Land and Investment Ltd. "Buyers are accepting the idea that luxury homes can have a floor space of 100 square meters, a frustrating reality that Hong Kong people have long lived with."

Sky-high home prices are pressing builders in Shanghai to redefine just how big a luxury property should be. The average price of a 90-square-meter home is about 25 times average household income.

More than two years ago, luxury homes with a floor area ranging from 250 to 400 square meters were commonplace for the company in Shanghai. However, with housing fever showing no sign of cooling down over the past two years, the state-owned developer has been compelled to control selling prices by trimming sizes to 200-210 or 130-140 square meters.

As of November, the average price of flats in Shanghai had reached 50,000 yuan ($7,278; 6,885 euros; 5,785) per square meter, while houses priced at no more than 100,000 yuan per square meter can hardly be labeled as luxury.

Upgraders who are in a hurry to replace their small apartments with better accommodation, have been the mainstay of purchasers. The hard fact is that the seemingly endless escalation of Shanghai's home costs is lowering people's expectations for living space.

A batch of luxury flats in downtown Shanghai, 100 square meters in size and valued at 10 million yuan each, has proven to be highly sought-after.

China Overseas says smaller luxury homes could well be a long-term trend, as Shanghai is poised to emerge as a mega city in the foreseeable future, dwarfing its peers like New York, London and Tokyo, both in terms of city size and housing prices.

"There is a big chance for overall home prices in Shanghai to surpass those of Hong Kong. So it would be safe to say that house-buying costs in Shanghai will see room to climb."

Although policymakers in the world's second-largest economy are grappling to cool the red-hot real estate market in first-tier cities, the developer says the flurry of cooling measures is weeding out unregulated, highly indebted properties, rather than dealing a blow to normal demand.

This has made the company reiterate its confidence in the coastal city's property market.

Demand on a nationwide level remains robust, which underlines price sustainability, four Harvard academics wrote in a working paper last month. This is in part because buyers are not highly indebted, tend to invest for the long term and are unlikely to sell houses even if prices drop.

luoweiteng@chinadaily.com.cn

(China Daily European Weekly 12/16/2016 page28)