I guess you can tell from previous articles we like Shanghai. We have often talked about how Shanghai is growing like crazy. The more we hear, the more we want to be a part of this phenomena. After much deliberation, we decided to invest in our own little spot here in Shanghai. I have always been a believer that rent is ripoff if you can afford to buy. However uncertain the world situation, the Chinese economy, or vast swings in the Shanghai real estate markets may be, we decided these factors could affect us where ever we bought.
From our research we determined that the real estate value crunch over the last few years seems to be largely bottoming out, and rents and property values for certain kinds of property are on the way up. 8 years ago, the 130 sq meter apartment in an expat building we are currently living in sold for over USD $400K. Today, similar size and quality in this neighborhood is running about USD$200K. However, a handful of the more popular new complexes are selling out very rapidly. Many of our Chinese friends and associates have been buying their apartments in the last couple of years. Most expats are hear only for a couple of years so there has not been a large contingent of expat owners ( besides the Hong Kong and Singapore developers ). With the environment ripe for major appreciation in real estate in Shanghai, the situation might swing the other direction.
So we decided to hit the street and see what Shanghai offered. We like the apartment we are in now and the rent we are paying is very good. We wanted to find a place to buy that would at least match, if not, improve on our situation. We started shopping some of the Shanghai real estate web sites. We visited several including ehouse.com, besttown.com, and jayuan.net. All these are Chinese language sites. We visited e-house real estate center on the corner of Nanjing West Rd and Huashan Rd. Dozens of new developments were offering their wares and hundreds of locals were snapping up the glossy, colorful multi-page brochures. Several of the developments most interesting to us were nearly sold out.
There were some really nice developments of townhouses at the very edge of city (a mile or so from the last subway station,) the plans looked really nice and the prices reasonable. In an ultra-modern development called Aegean Village near the last subway stop, a 184 sq meter with tall ceilings, two floors, 3 bedroom with all the amenities including pool, club, satellite, ADSL and more ran about RMB 696K plus "furnishing" - which has not much to do with furniture.
Furnishing has to do with flooring, paint on the walls, sinks and tubs, ceiling lights, major appliances and all stuff you buy to turn a cement shell into a comfortable, homey living space before the furniture comes in. We gave a couple of these end-of the-subway developments serious consideration but decided they were too far away from downtown and the areas we wanted to be in.
We looked around trying to balance what we liked with what we wanted with what we could afford. We looked at some of the buildings around our current area. Our landlord would sell the unit we were living in with parking space for USD $250K. Having purchased at market peak in 1992, he would have a hard time recouping. Of course we wondered if some of beautiful old houses on tree lined streets near Hengshan Rd would be available. We found a few listed for USD 600K up to USD $1 mil. A bit out of our range. Quite a bit. A lot of those places are being bought up for commercial use now. O'Malleys- the local Irish pub and Sasha's - upscale fine dining establishment are in such beautiful, restored buildings. We looked at some of the newer high rises in the area close to our present apartment. Most were buildings for locals, had low ceilings and were mostly very small. For a nice building close to downtown, most locals will pay between RMB 3,000 up to 8,000 per square meter for a decent apartment. Most we looked at weren't worth it. Most of the new developments did not include "furnishing".
Expat units on the other hand were going for RMB 8,000 up to 15,000 per sq meter. This is mostly because foreigners from any country have to lease a portion of the land that unit sits on as part of the deal, where locals do not. Rumor has it that this may change soon in Shanghai. All developments have a management fee which you pay for things like garbage, security, and common area maintenance. This could be anywhere from RMB 300 up to RMB 1200 per month depending on the services. Many required 40% down payment in order to be financed. There was a huge range in price, quality and terms. I was quickly able to spot whether a unit was worth looking at or not in the first 5 minutes in the lobby.
We finally heard about a development in Pudong. Pudong is one of the fastest growing areas of the city. If you take taxi across the river from the Bund you are in Pudong. Ten years ago, it was all farmland. Now construction of major office complexes, recreation attractions, shopping areas, and thousands and thousands of high-rise apartments is making it the center of the new Shanghai. My wife's brother still thinks that only farmers should live in Pudong. The Government's plan is to turn the area near the river into the next major financial center of Asia. The government is trying very hard with major development, business incentives, a brand new international airport, and more to make Shanghai in general, and Pudong in particular, the place for business to come to Asia.
We finally settled on a place in Pudong. It was the right combination of features, pricing, terms, and location. The development is called Oriental Grand Gardens. Phase I will be complete in June. We picked up a 2 bedroom 2 bathroom, 101 sq meter, 10th floor unit for RMB 695,000 or US$85K. We had to come up with 20% down and got a 5.5% 30 year mortgage. Features include; complete "furnishing", major appliances including an oven (yeah!); very high quality materials, ADSL, security system, a club for tennis, squash, indoor swimming, workout room; 53% actual green space (not including roads and parking - actual trees and grass); 3 blocks from the river and 10 blocks from the new financial center development. Pretty good.
Our final contract was a scene to remember. Margaret and I, her brother George and his wife Angela - who has had some experience negotiating contracts, our friend Jane and her husband, Fang Pu, all showed up at the sales office. Looking around, shells of the buildings that would soon be our home were busy being transformed by work crews. The promised green space was piled with mud, building materials, and equipment. In the large office a scale model of the completed complex showed what we hope to find at the end of the project in 2 years. Our unit in Phase I was due to be ready in June 2001.
For the next 5 hours we negotiated every point of the contract. They gave in some and rewrote parts. We made sure everything they promised was in writing. The lawyer came in and put his chop on each change, each initial, and each signature through all 8 copies. It came time to make the down-payment. Everything is done in cash. Since there are no checks in China, we had to bring our 20% down in 100 RMB bills (equivalent to USD$ 12.50) We pulled out the several bulky bundles of 10,000 RMB each and handed them over to the accountant who ran them through their rapid counter. We got into the last smaller unit. Yeah...we now are down proud owners of our own little piece of Shanghai heaven.
We want to pull together some more resources and buy one of the larger units in Phase II. Given Hong Kong's rents are right now US $5000-10000 for an mid-level expat style apartment, we think these Pudong units will appreciate rapidly. They also might be fun to live in!