Shanghai relaxes housing policies to boost demand

• Primary mass-market home sales only increased 1.0% q-o-q to 2.0 million sqm in 4Q23 despite a surge in new supply, as homebuyers remained cautious amid economic uncertainty. Annual sales volume for 2023 reached 9.2 million sqm, down 10.3% y-o-y. High-end sales reached 821 units (up 113.2% q-o-q) in 4Q23 and 3,073 units for the full year, down 24.9% y-o-y. 
• To shore up buying demand, Shanghai relaxed homebuying restrictions in December 2023 by lowering minimum down payment requirements and mortgage rates for both first-home and second-home purchases. Furthermore, Shanghai allowed more residences to qualify for lower transaction tax rates in an effort to support a recovery in secondary home sales.

Pace of new high-end supply picks up in 4Q23

• Developers accelerated new project launches in the quarter with the aim of achieving sales targets by year-end. As such, new supply increased 38.2% q-o-q to 3.3 million sqm in 4Q23. However, annual supply for 2023 as a whole reached only 10.3 million sqm, down 11.0% from that of 2022. 
• Four High-end projects totalling 900 units reached the market in 4Q23, with average prices ranging from RMB 130,000 to 140,000 per sqm. Projects such as Century Origin and Jardin Des Lys (Phase 2) were particularly sought after by upgraders.

Primary prices edge up while Secondary prices drop further

• Average Primary prices rose a further 0.6% q-o-q to RMB 132,892 per sqm amid looser price caps. Meanwhile, subdued homebuying sentiment coupled with a surge in Secondary projects listed for sale gave more bargaining power to upgraders, which led average Secondary prices to decline 3.8% q-o-q to RMB 157,855 per sqm.
• A sharp increase in the supply of High-end projects for lease coupled with subdued new leasing demand further dampened High-end leasing momentum. Average rents for High-end apartments were RMB 181.9 per sqm in the quarter, down 3.5% from 3Q23 and down 4.6% from the same time in 2022. 

Outlook: Policy easing expected to spur sales recovery

• We expect that the recent policy easing will strengthen buyer confidence and facilitate a recovery of home sales in both the Secondary and Primary markets in 2024.
• Primary prices should continue to edge up as price caps are poised to remain loose. Meanwhile, Secondary prices may see further declines in the short term and stabilise later on, as the recent policy easing takes effect and more upgraders return to the Secondary market.