Shanghai Daily news

Right now in Shanghai, some of the best returns are still in colonial style property.
With the slowdown after the new regulations, newly built residential properties, especially the mid-range, high-rise compounds, have seen the biggest decline. Many of the new properties have seen price adjustments of up to 15 percent in the downtown area. Most just aren’t selling.
After the announcement of the new taxes in July, we at Space International Shanghai experienced about two months of slowdown. Now we have seen a slight rebound in the more exclusive, high-end new residential properties.
However, we have seen the strongest rebound in the older, colonial style properties. The strength of the colonial
property can be attributed to simple supply and demand. Old properties are limited in supply but demand is growing fast as multinationals, entrepreneurs and businesses from all over the world rush into China seeking opportunities and access to the potentially massive middle-class of consumers.
New properties, however, are in over-supply. If you drive past any of these new residential towers at 7pm or 8pm you will notice that only about 20-30 percent of the lights are on in these places. Some of the newer towers are simply “ghost towns” as much of the building has been purchased en-masse by Taiwanese and Hong Kong buyers who have been known to buy entire floors or more.
They simply buy and hold.
Another benefit of the older properties is that the rental prices can be anywhere from 20-150 percent higher than for a new property. The uniqueness value, character and scarcity are making them a hot commodity.
Part of Space engages in expat leasing. We specialize in former French Concession properties. I believe we have more colonial property for rent than almost any other company but we still never seem able to meet the demand.
There simply aren’t enough properties.
Even though you drive down the street and see rows of lane houses and old apartments only about 35 percent of the downtown properties are actually “freehold.” Only “ freehold” titles can be sold to foreigners and only “freeholds” can qualify for a loan. If only 5-10 percent of these properties are actually available for sale only, one-in-12 will actually be available in any one month since the average rental is for one year.
Another benefit of old properties is the higher efficiency rate or higher amount of usable space. Most new apartments have about 60-75 percent efficiency. This means if the property title says the space is 100 square meters the actual usable space is really only up to 70 square meters. In some cases the usable space is even smaller.
Old properties, however, start at around 80 percent and can actually have larger usable space than is on the title.
Outside space for old properties (except garden homes) is “free” space and is not included on the property title.
Another benefit of old property is that renovation is easier and allows for more creativity. New properties have very strict guidelines on the renovation you can do.
Moving kitchens and bathrooms or changing the ugly storm windows is usually out of the question.
If, for example, you buy an old lane house you own the house from top to toe and can really completely alter the inside to your own taste.
Moving stairways, adding skylights, enlarging kitchens and moving walls can all be done simply and with the lower
labor costs here the amount that can be achieved for the price is quite astounding.
These stylish renovations account for many of the higher rentals and thus keep the sale prices strong and are, in large part, the reason they have rebounded much faster than the average new property.
With the over-supply of new properties, prices are not moving much and I would suspect may drop a bit for the
average new apartment.
That said, the most important part of buying a good investment is first making sure you personally have a good
understanding of what you are getting into. You are still buying property in China and there are risks to be aware of. Space has always held the view that education is the best and most important part of our job.
We spend more time with our clients educating them on the market, not selling them, so that our clients can make safe, informed decisions.
The writer of this article is the owner of Space Properties, which specializes in former French Concession properties.
www.space.sh.cn