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Property

Stratospheric Shanghai property market plateaus

Despite condo glut, prices remain beyond reach while overall economy takes hit

The Shanghai real estate market may have finally run out of steam, as the property rent index has remained flat for about two years. (Photo by Kosaku Mimura)

SHANGHAI -- Shanghai's pricey real estate market appears to have peaked as condominiums glut the market and the property rent index remains flat for the last two years.

In October, developer Country Garden Holdings slashed prices on its unsold condominiums in the eastern outskirts of Shanghai from 35,000 yuan ($5,068) per sq. meter to between 26,000 yuan and 28,000 yuan. Furious owners -- many of whom never moved in -- are staging protests near their properties, demanding that the company stop manipulating prices and reimburse them for potential losses.

One protester's sign proclaimed Country Garden a scammer. But the company has dug in its heels and refused to refund, angering buyers who had snapped up the condos in the hopes of flipping them for a profit in what was seen as a soaring real estate market without a topside.

Times are tough for everyone in the market. Yu Liang, chairman of risk-averse China Vanke, the country's largest property developer, said his main goal is to survive, as the company must recoup 630 billion yuan in funds, including accounts receivable.

Typical prices for so-so condos a one-hour train ride from central Shanghai cost 40,000 yuan to 60,000 yuan per sq. meter. This means a family of three would have to fork over about 3 million yuan to squeeze into a 90-sq.-meter unit -- roughly a 20-year mortgage for double-income families earning 10,000 yuan a month.

Shanghai rents have also plateaued but do not seem headed down from their current nosebleed levels. In the city suburbs, shabby one-room apartments fetch about 700 yuan a month. Meanwhile, shared six-sq.-meter rooms rent for 400 yuan to 500 yuan a month, while decent rental houses go for more than 1,000 yuan, putting them beyond reach of workers who struggle to get by on the minimum wage of 2,420 yuan.

The sky-high prices may also be scaring off foreigners, whose numbers have increased by only 20,000 in the past ten years.

Shanghai's property rent index jumped 60% over a 10-year period until two years ago, excepting the 2008 global financial crisis. The soaring rents pushed up property prices. But despite the city's property market being buoyed by falling loan interest rates, the index has remained flat in the 1,900-range since autumn 2016, according to research company Ehomeday.com.

This indicates that the real estate boom has run out of steam, affecting other areas of the economy.

Chinese consumers have long believed that rising property prices would translate into greater purchasing power. But stagnating property prices coupled with sluggish wage growth and a trade war has sent inflation-adjusted growth in retail sales slumping to the 5% range.

The country now finds itself in a vicious cycle, with flat property prices putting a brake on economic growth, which in turn lowers asset prices overall.

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