Renting Apartments in Shanghai: Why Now is a Good Time for Renters

Saturday, April 26, 2008 6:42
Posted in category The Halfpat Life

Real estate is Shanghai has been one of the most consistent topics of conversations in Shanghai for all of my time here. Lately, the market has been on fire as real estate agencies that were culled 2 years ago are now back in full force (I suspect the tanking equity market is driving flight to real estate assets), and prices are on the way up..

Over the last three weeks though, and after 4 years in the same flat, I began a search to find a new apartment and once again I was reminded of just what a game the rental market is.

Before I get started, I should metion that I have done this before.. that I have a pretty strong knowledge of the local market (where I want to live and what going rates are).. and my girlfriend can pretty much name off the pricing of any compound inside the inner ring road.

Add that together, add 3 real estate agents running in parallel, and you have the ingredients for a marathon of apartment viewings. This time around, my girlfriend and I were focused. We were looking at a particular area of town, near the subway, and of the 10 compounds in the area we knew from dinner parties and coffee talk – we knew 3 of them were off limits, 3 were high targets, and the other 4 we would only consider if there was a cut throat deal involved.

Before we got started in this process we knew a few things to be certain:

1) With the Olympics approaching, those who were coming for the Olympics were already here and so there were not a lot of people looking to rent
2) Unlike previous years, there was plenty of new stock on the market that was attractive. Zhongshan park has grown significantly, Pudong, villa compounds.. all have diluted what used to be a highly concentrated market
3) With many firms localizing employees, housing allowances for many single halfpats has been reduced, making 3br apartments too expensive
4) With a lot of new villa compounds hitting the market, spending 3-4k USD on a flat is also not as attractive as it used to be
5) Many of the apartments in the area we were looking at were starting to decline as they have hit the 5-8 year age range
6) No one knew what was going to happen after Olympics, but we are all sensing that at the very least there will be a 5-10% reduction in expats in China who are just here for the big show

So… with that we began the marathon….

Going through this process, we first came to understand that for a 3 bedroom the going rate in the top 3 was between 18,000 – 23,000RMB a month (2500 – 3000 USD). a MONTH. 2 bedrooms were pushing 12,000 – 15,000 a month at the offer. and like the copy markets in Shanghai, we knew we needed to take 20-30% off that right away.What I always find interesting about landlords and stock holders in a good market is that they are always blind to reality, and truly believe that everything will continue going up. They found a client last year at 14,000RMB a month 2 years ago, so naturally it should be 16,000RMB this year right?

Well…. not really.

Quickly through a simple phone call 22,000 (management and tax included) could be reduced to 16,000 – 18,000,but getting down to the 12,000RMB (management only) was proving tough. We managed a 14,000, and even a 13,000… but getting below that was harder than we thought. Landlords just weren’t biting.

What made the negotiations harder was that we were pushing for a minimum 3 year lease, and an option for the next 2 at the same rate. In our mind, using the 5 reasons above as our support, we found that to be highly attractive given the uncertainty over the future market.

By the second week, we had seen north of 30 units in 3 compounds (all 3 bedrooms), and to be honest it was dizzing. First thing I always look for is the furniture. Is it from the ming dynasty? IKEA? Is there too much? to little? to orange? I am always amazed by how landlords will spend 300,000USD on an apartment, and then spend so little time on the furniture and fixtures. It is almost like they go out of their way to make it look like a Ming Dynasty KTV… So, quickly 30 become 5 that are “livable”

One we did manage to find one that was really nice was owned by a couple had obviously lived there for a while, had put some money into the little thing, and were friendly. All was looking good… until

  • We were looking for a 3 year lease.. they balked
  • We were looking to take keys in 4 weeks… they balked.
  • Because we really liked the place, we were willing to up the ante.. to 12,500… they agree.. but came back later at 12800.

and that was the first of 6 offers…. resulting from 30 viewings

through this process we would always discuss the landlords, and particulrly how we could read walking in the door what we were in for:

1) Old ladies who open the door are a sign of bad furniture

2) If an apartment was previously rented to a Japanese client, it increased the likelihood of multiple satellite dishes.. BIG satellite dishes..

3) Older buildings would have better fit out to compete

4) Landlords that live in town were less likely to negotiate.. on anything

So, with that in mind. Happy hunting. To be honest, more than any other time I can rememeber, some of the top places in the city are seeing high vacancy rates, and with the economy slowing, the Olympics on the way, and interest rates going up… for once the tables have turned in favor of the tenant.

Oh. One word of caution. Century 21 agents are known to jack the price down to attract potential tenants. We wasted a lot of time with them, and I would suggest readers stay away from them.

You can leave a response, or trackback from your own site.

4 Responses to “Renting Apartments in Shanghai: Why Now is a Good Time for Renters”

  1. Charles Frith says:

    April 26th, 2008 at 3:49 pm

    Useful post. Thanks

  2. John Guise says:

    April 27th, 2008 at 8:09 pm

    Very useful post Rich. I’ll pass this on to any of my friends that are apartment hunting now.

    I remember going through a similar experience trying to stay in the community I’ve lived in for three years. I succeeded and with a much better place but it took two weeks of hard negotiating with the landlord to do so.

    J.

  3. Elliott Ng says:

    May 2nd, 2008 at 10:33 pm

    Great post. I feel exhausted just reading it. What are the metrics that you considered when you were shopping besides RMB/month?
    E.g.
    RMB/sq-meter/month

    How does rent comparing with buying? What would be the RMB/sq-meter purchase price and what would be the net operating income ( (rental income -expenses) / purchase value)?

  4. Rich says:

    May 3rd, 2008 at 2:06 am

    Elliot,

    to be honest, I do not work on RMB/ m/ Month on a rental basis as I we were looking at too many places. for us, 12,000 was our target (including management fee) for a 3 br (150-180m). If I were looking at 2br, then I would be 8000 RMB as a target.

    Right now, there is a lot of stock of 3 br. they are too expensive for a halfpat paying on his own, they are too expensive for a lot of local hire packages that do have housing, and any expat with a package is going out to the villas…. so, if the landlord is siting on a 3 br (especially if the fitout is ma ma hu hu), more then likely they are willing to deal.

    In general, buying right now is not good. Some of the sites like Xin Tian Di are getting 75,000+, while others in Xuhui are 35,000. but match that to the rental, and the yield is negative.

    If you are going to buy, only look for inner ring road, recently built, with strong rentals. Shanghai is a bit like NYC. Even in a downturn, prime real estate holds its value…. while everything else gets hammered.

    R

Leave a Reply