Shanghai's wealthy upgrade to new luxury homes despite property market downtrend

The city saw 1,544 luxury homes sold in the first half of the year, up 39% from a year ago, according to data from China Real Estate Information Corp quoted by SCMP.

Luxury homes are defined as those priced over 30 million yuan (US$4.2 million). In Shanghai, the majority of ultra-expensive apartments are concentrated in the city center, while villas are typically located in the suburbs.

The surge in demand was driven by wealthy individuals looking to upgrade to newly built homes, according to analysts.

"New housing projects that started selling this year have attracted wealthy people," Shirley Tang, senior director of residential sales at property consultancy Savills Shanghai, said. "We have seen a strong desire among wealthy buyers to replace old units."

You Liangzhou, owner of real estate agency Baonuo in Shanghai, noted that around 90% of high-end housing transactions occurred in the primary market.

This stood in stark contrast with the broader decline seen in China’s property market. In June, new home prices in the country fell for the 13th month straight, hitting the lowest since June 2015, while property sales and investment slumped, according to Reuters.

Despite this, high-end residential properties in Shanghai, a major financial hub dubbed China’s economic locomotive, are still sought-after by rich Chinese due to their limited availability.

"Luxury homes in Shanghai are always worth buying even though there are mounting worries about a housing bubble," said Gu Wenjin, a Shanghai-based entrepreneur looking to buy a new flat with a budget of nearly 50 million yuan. "After all, these are rare assets chased by nearly all rich people from Shanghai and other parts of the country."

Additionally, luxury real estate transactions in the city have also been boosted by recent supportive measures introduced by the Chinese government, as reported by Bloomberg.

In Shanghai, the minimum five-year mortgage rates for secondary homes have been reduced from over 4% to 3.9%, and the down payment requirement for second homes has been lowered from 50% to 35%.

The city has also eased a 2011 policy that restricted households to owning no more than two properties, now permitting families with two or more children to buy a third home.

Since these supportive measures were introduced, property transactions in major cities like Shanghai and Beijing have increased.

Looking towards the future, analysts expect the surge in activity to cool down in the second half of the year.

Meanwhile, others, such as Song Yulin, a senior manager at property agency Lianjia, a unit of Chinese real estate transaction platform KE Holdings, are more optimistic. "In the near term, the luxury segment will continue its upward momentum," he said.