Big SH

Between 1843 and 1935, when Shanghai was ceded to the British following the first opium war, the city’s population grew from about 500,000 to 4m. The city was transformed into a bustling international port and as trade thrived westerners poured in. The city was carved into foreign “concessions” — districts of imported architectural styles — giving Shanghai its distinctive character and its reputation as the “Paris of the east”.

In 2015 the population of Shanghai was about 23m. The megalopolis is both China’s financial capital and the world’s busiest container port. Westerners make up a fraction of the whole but, in the past decade, as business between China and the world has bloomed, the number of Americans, British and Europeans — as well as expatriates from wider Asia — has risen 70 per cent, from 100,000 in 2005 to 174,000 in 2014.

A small but growing number have plans to stay. Shanghai is perceived as being more “comfortable” for foreigners than other Chinese cities. The smog is less extreme than in Beijing (although its skies are rarely blue), the city has a flagship branch of Marks and Spencer and the Shanghainese tend to be more forgiving of foreigners’ feckless Mandarin than their northern counterparts.

Tapas bars, speakeasies and other harbingers of global sophistication are appearing rapidly. Shanghai claims to have the world’s first “multi-sensory” restaurant, Ultraviolet, launched in 2012 by French chef Paul Pairet, where a maximum of 10 guests are served 20 courses in a room fitted with scent emitters, 360-degree projection and 36 speakers for an “immersive dining” experience that costs $400 a pop.

Regina Yang, of Knight Frank Shanghai, says foreigners gravitate towards Shanghai’s two traditional high-end residential areas: Pudong’s Lujiazui — close to the forest of skyscrapers in the city’s financial district and the banks of the Huangpu river — and downtown Puxi, which encompasses the former foreign concessions.

In Lujiazui, units in the coveted, super-prime Shanghai Arch development, which overlooks the river, are on sale for Rmb126,569 ($19,240) per sq metre. Meanwhile, in Puxi, a three-bedroom apartment with a balcony in new development The Palace, with access to a pool, gym and spa, is on sale for Rmb16.2m ($2.5m) through Savills.

While Chinese buyers are usually drawn to new developments for their modern amenities, security and concierge services (there is a common assumption among locals that old things are of less value than new), most foreigners dream of owning ashikumen, or “lane house”. These two or three-storey town houses occupy narrow alleys with ornate stone gates and were built in the late 19th and early 20th centuries to accommodate the swelling population. Built as terraced houses, shikumen have a smaller floor area than a traditional courtyard home. The former residence of writer Eileen Chang — a 1920s six-bedroom, refurbished townhouse down a lane near Jing’an Temple — is on sale for Rmb35m ($5.3m) through Savills.

The most desirable lane houses are in the old French concession. Beyond a smattering of high-rises and the odd mall, little has changed about this area aesthetically since the early 20th century. Art deco apartment buildings and garden villas of the sort author JG Ballard grew up in (today favoured by top Communist party cadres) line the meandering streets, shaded by plane trees. While centralised planning has consigned most Chinese cities to unyielding grids with wide, imposing avenues, Shanghai has been spared — getting lost in its alleys, where groups of pyjama-clad pensioners play Chinese chess, is a peril and a delight.

The reality of buying a lane house can be less delightful. Frenchman Xavier Naville bought a shikumen in the French concession in 2009. “The electricity is not well connected, so each time you switch on two air conditioners at the same time the fuse blows,” he says. “You’ve got a lot of sewage problems. Rodents.”

Still, when Naville and his wife relocated to the US last year they kept the lane house. “We will get back to China one day,” he says, adding that Shanghai is more affordable than the world’s other financial centres. The average price of prime property in Hong Kong, at $4,300 per sq ft, costs four times the average in prime Shanghai, at $1,090 per sq ft, according to Savills.

“My reasoning is any city in the world that has a major stock exchange has a very strong real estate market. Any rich person in China wants to have a property in Shanghai,” says Naville.

Shanghai is on course to eclipse Hong Kong and Singapore and become Asia’s financial capital. There is something optimistic about the place; the air of possibility that brought foreigners to the city a century ago has more recently drawn millions of migrant workers from China’s poorest provinces.

Between 2003 and 2010, as the Chinese economy experienced close to double-digit annual growth, the average price of new dwellings countrywide more than doubled. In 2006 the government introduced policies to cool the market, including a provision that meant foreigners could only own one property and needed to have lived in China for at least a year before buying.

In August last year the government lifted these restrictions, but the impact on the residential market is likely to be small, since foreigners make up a minuscule proportion of buyers: last year, they accounted for just 0.5 per cent of existing-home transactions in Shanghai.

Rather, the loosening of restrictions is interpreted as a goodwill gesture aimed at boosting morale after the renminbi’s devaluation and the economic fallout last summer. A further indicator of support for the housing market is the reduction in interest rates. In October, the People’s Bank of China lowered the one-year benchmark interest rate 0.25 percentage points to 4.35 per cent, a historic low.

Yet few buying today expect a repeat of the runaway growth of the past decade. Between December 2008 and December 2015, the average price of prime property in Shanghai rose from $700 per sq ft to $1,090, per sq ft, an increase of 56 per cent. “I think everyone is well aware that prices are high and the room for appreciation is not huge,” says one US citizen working in financial services in Shanghai who asked not to be identified by name. “But most people still think it’s not necessarily a bad place to park money, especially if it’s not a primary asset for you.”

Last year he and his wife, who is Shanghainese, bought a 100 sq ft, two-bedroom apartment on the 11th floor of a high-rise compound just outside the city’s inner ring road for Rmb5m. They do not live in the apartment but rent it out instead and he estimates the rental yield to be as low as 1.8 per cent.

“In China, as a whole, yields are very, very low. It costs very little to rent,” says James MacDonald of Savills Shanghai. “You can’t buy a property in Shanghai based on the yield or the short-term returns. I think the biggest hurdle for foreign investors is that.”

Instead, MacDonald sees value in the long-term potential of Shanghai. “It is a very vibrant city,” he says. “It is somewhere that attracts people from around the world, and it is the financial centre, so all these things do make it an attractive city as a place to live, and that underpins the value.”

Buying guide

● Shanghai is the most expensive city for expats in the Asia Pacific region, says consultancy ECA International

● The Shanghai Metro, with 14 lines and 364 stations, is the largest rapid transport network in the world by route length, measuring 588km

● Shanghai has a humid subtropical climate with summer highs of 32C and winter lows of 2C

● The city has a range of international schools offering UK and US curricula

What you can buy for …

$1m A two-bedroom lane house apartment in the old French Concession

$5m A five-bedroom, four-bathroom western-style family home with a garden in a compound in Pudong

$10m A four-bedroom apartment in a newly built high-rise in the heart of the Lujiazui financial district, with views over the Huangpu to the Bund

 

Link to the FT online