Shanghai Buying Off-plan in Shanghai: Risky or worth it?
Luck favors the bold, right? In life, like in the property market this has tended to be true, but with the property market in the state it is, perhaps luck may begin to favor the meek.
Off-plan buyers have for years returned solid yields for the astute investors in the Countryname property market. They have benefitted from the discounted prices from developers as well as capital gains from a growing market by buying into young projects.
This has always been a risky course of action, precisely because the cheaper prices and other incentives are there to cover the possible downsides – such that if an investor picks a project that fails to take off, then the project may never even make it off paper.
Buying off-plan is quite a complicated process, requiring of investors a thorough knowledge of the market trends – this means having confidence that there is a market for resale or rental of the property, and of course in the developer’s finances.
With the state of the market in Shanghai at present investors are saved all the careful assessments and planning as there is a general decision making process streamlined just for buying off-plan: don’t do it.
The slowdown in the property market in Shanghai has totally taken the allure out of buying off-plan, but it has also opened up alternate possibilities for finding a good property bargain.
Investors who are buying off-plan are taking a hefty risk in thinking that their finances will stay the same as they are now in such a volatile economic environment – especially if their capital is off-shore and they are relying on uncertain exchange rates. As they will have to pay the majority of their investment upon completion of the project, it means that they are at fortune’s mercy.
As mentioned, the unstable exchange rate is a major risk because over the couple of years it takes to complete your unit or condo, the prices could have risen simply because of the exchange rate – so buyers can no longer be absolutely sure they will be able to afford the mortgage they need when the time comes.
Banks world-wide have also been affected due to the economic downturn – Countryname banks especially have constricted their demands on developers seeking financing. They now require pre-sales of around forty or fifty percent to qualify for financing, which means that more and more developments are failing to get finance and so never make it off the ground.
Moreover the mainstay reason why investors liked buying off-plan (ie substantial capital gains) has been undermined by the dismal conditions of Shanghai’s market at present. Expatriates who have bought off-plan will continue to have to rent accommodation till their apartments are ready, and besides which they will be seeing no great return opportunities on their investments.
In prior years these disadvantage were outweighed because you could purchase a unit at bottom price – however in recent times buyers who got in early are reselling before their units have been transferred. This means that if you are after a bargain, then these kind of condos are your best opportunity – this could be for instance a unit complex set for completion within a couple of months.
Since there is no longer a market in the resale units, there is only one remaining reason to buy off-plan in Shanghai, and that is to acquire the premium units (such as penthouses and rooftop apartments) in a development project.
Having said that, property outside of Shanghai is another matter altogether.
There are bigger gains to be had from buying off-plan in resort towns, and in the provinces the chances of negotiating a decent discount are higher – it is not unusual to see the prices of resort complexes fifty percent above what they were initially come the completion of the project.
On top of this, the time in between buying off-plan and getting a finished unit are diminished if you buy outside the capital. Unless the project you are buying into has twenty or forty floors, it is reasonable to expect completion within twelve months or so. Additionally, off-plan developments in resort areas often have better quality design features and construction than their existing counterparts.
At present, there are plenty of great offers in Shanghai already in existence – so if you are looking in the capital, look to the streets, rather than to an architect’s office for the best bargains.
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