Mon, February 21, 2011
Open and empty
In a healthy market, average vacancy rates range from 5 to 10 percent. This maintains a balance between supply and demand. However, there are strong signs that all is not well with parts of China's property market.
In the Chaoyang district of Beijing, villas and luxury apartments accounted for 55 percent of the apartments and houses that had been empty for three years or longer, according to a report published by the district government in August.
Among the many newly constructed projects, the Jingjin New District is said by its developers to be Asia's largest luxury villa compound. Situated in a suburb of Tianjin, a metropolis 120 kilometers (75 miles) southeast of Beijing, the district has a vacancy rate of 90 percent seven years after it was built, according to a report of the China National Radio.
"The main reason for the high vacancy rate of villas is that the owners bought them to use as weekend and holiday accommodation while living in the city during the week," said Qin Feng, manager of the Shimao Riviera Garden branch of Centaline Property, one of the top property agencies in Shanghai. Qin added that despite buying weekend retreats, many owners never got around to making use of them.
Fortune Residence is one of the most expensive residential neighborhoods in Shanghai. The average price for a luxury apartment overlooking Huangpu River is about 120,000 yuan ($18,253) a square meter. It has a 50 percent vacancy rate on properties worth at least 20 million yuan.
A similar situation can be found in the Hongqiao area, including Gubei. This was the first part of Shanghai where land was made available for foreigners and estate developers. Most villa developments in Hongqiao have good occupancy rates but the global financial crisis had a particularly strong effect on Gubei apartments, where many tenants were in middle management. They found they were often first in the firing line and left Shanghai en masse over the past two years. They are only now beginning to return.
Despite the high vacancy rates, prices have continued to rise.
"The lowest price for villas in Shanghai is expected to increase from 50,000 yuan to 100,000 yuan a square meter within two years," said Yang, the E-House researcher.
Worth the wait?
Yang said the high vacancy rate for villas lay in the fact that vast profits could be made just by leaving them empty. In some cases, prices have doubled or even tripled.
"Certain real estate investors pay more attention to the villa market because the return rate is much higher than an apartment, although the vacancy rate is almost twice as high," Yang said.
Owning property in China is regarded as a sign of success. It shows the owner is family-oriented and able to handle challenging financial problems. Home ownership has become the ultimate symbol of virility and status in China today, say social observers.
The chronic vacancy rates for villas in China is unlikely to end soon because those rich enough to afford them are rich enough not to have to live in them and quite happy to stand by as they go up in value.
"In the West, most property owners rent out homes they don't live in. Chinese owners don't care that their properties are vacant because they have found it easy to resell the property for a higher price as the market boomed," said Zhang Kunyu, an investment consultant with Centaline Property in Beijing.
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