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The Luxury Insider: The Shanghai Express

No doubt the best place from which to see Shanghai is to stand on The Bund and watch the post-card view of Pudong, on the other side of the Huangpu River.

Perhaps the best time to see Shanghai is at the crack of dawn, when the sun plays hide & seek between the skyscrapers of Pudong, enveloping what looks like an island in a cloud of haze. Or is it in the late afternoon, when the special effects of the sun transform Pudong in the make-believe décor of a movie studio?

Or again, the best photo-op may be when the sky turns dark and Pudong is lit up like Times Square on New Year’s Eve, with an explosion of colors on the Oriental Pearl Tower and dancing lights & forms on the glass façade of the skyscrapers.

No matter the time of day, no matter the day, Shanghai looks magical, strikingly beautiful, incredibly powerful, and yet So mysterious. It is China, at least it is the new window, the new pulse, the new symbol of a new & proud China.

I spent a few days there, at the end of July, to attend a conference organized by The Luxury Portfolio International, our global high-end marketing partner. It was quite an education. It was an eye-opener.

For all of us, real estate professionals focusing on the high-end, it is only a fact that the Chinese have become the leading buying power at the top end of the US luxury market. From what I learned at the Shanghai conference, we’ve seen nothing yet.

One word is enough to understand the new China: “wealth” is that word. It creates, within the country as well as overseas, a major paradigm shift in the way the Chinese see themselves, see others, and act accordingly on their needs or desires. Traditions are deep in China but so are aspirations.

Fred Lam, one of our top luxury market specialists in California and one of my travel companions in Shanghai, explained to me what we may call the Chinese philosophy of life. All their life, he said, the Chinese see themselves as pushing a massive heavy ball uphill. There is no stopping, no matter the fatigue, because the ball cannot stand still.

This “tale” says a lot about the Chinese insatiable drive to excellence. Excellence usually translates into success and money. Money is flowing today. At this point, China counts around 2.9M $millionaires, according to Rupert Hoogewerf, one of our speakers at the conference and chairman of the Hurun Research Institute. Perhaps more telling about the new wealth is the fact that the number of Chinese $billionaires, 358 on the books, is in fact more like 650, meaning more than any other country.

For the most part, their fortune has been fueled by real estate. For the most part, their fortune is spent in real estate. It is a game-changer, there, here and everywhere.

In Shanghai, a town of roughly 30 million that keeps on growing, real estate is on fire. Prices have gone up vertically in recent years and managed to gain another 12.6% this year, according to the Hurun Luxury Consumer Price Index. In Shanghai, $1M buys roughly 1,000 square feet in an “average” neighborhood. If you are looking for a nice pad in the pricey French Concession, you are looking at $5M and up. If you fancy a brand-new luxury condo in one of the Pudong towers facing The Bund and with a view forever, you better be ready to break the bank.

One such unit (a penthouse suite) is available: 7,534 sqft, 4 BR/1 maidroom/5BA/2HalfBA. The price? $32.3M USD, i.o.w. $4,287/sqft. Still breathing? Now, if you want a beautiful Mediterranean-type villa in a gated country club community, we can offer you a nice one only 20 minutes from the Pudong Financial District. For $86,300,000 USD, you get 9,289 sqft (yes, 9,290/sqft…), 6BR & 4BA. And don’t forget to pay an additional $740/mo in HOA.

Finally, please keep in mind that you don’t really own the place. You are actually leasing it for 70 years, no more. That’s the deal in China. After that, it is supposed to revert back to the State. If you think that luxury homes are expensive in the US, think again.

What does it mean to us? A lot. I kind of know who is going to buy trophy homes in the US in the years to come. Today, China is already the N.1 buyer of US real estate in $volume. That represents a mere $22B, over 25% of all international sales. 76% of these transactions are cash. The Chinese buyers are already setting the price in Los Angeles, San Francisco, New York, and Seattle.

More is in the cards. You just have to look at the number of Chinese students enrolled in US schools. There are more than 200,000, including 90,000 in California. FYI, one of the main reasons why the Chinese buy here is to give their kids a place to live while getting an education. Parents are following, as 60% of the wealthy Chinese are emigrating to Western countries; mainly in the US.

The question of the year is: if you consider that in many luxury markets, something like 50% of the residential sales over $10M involve Chinese buyers and the number of such buyers (together with the dollar amounts invested) may grow as much as 20% a year, what do you think the picture will be at the high-end in 5 years?…

A piece of advice to the top guns of the luxury market: time to learn how to speak Chinese.

Alain Pinel

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