Savills: Shanghai announces further crack down on commercial titled residential developments

The government announced on May 17, 2017 a new campaign against irregularities within the city’s residential market, focusing on the development and sale of commercial titled residential developments.

Commercially zoned properties used for private residences have existed for a number of years. These properties, technically classified as commercial properties, were not subject to residential specific rules, such as the house purchase restrictions, making them favoured by individual investors. At the same time, developers used these types of properties as a way of increasing the residential component of mixed-use developments when they felt that there was not enough demand for traditional commercial properties, or when commercial housing projects could fetch a higher price.

According to reports there are a 17 million sq m of such developments in Shanghai, 12 million sq m of which have yet to be delivered to buyers and 5 million sq m of which already have residents. While each case will be handled differently depending upon the circumstances of the development; nevertheless, owners and developers are generally expected to rectify units to ensure they adhere to the parameters defined for commercial titled properties.

The city government also said it will suspend approval for any new commercial-title apartment projects.

The announcement comes amid a string of tightening measures in the residential market for a number of the first-, second- and third-tier cities in China that have recorded phenomenal price growth over the last two years. Growth rates in many cities have slowed dramatically in response to these measures and a more limited access to financing.

A stricter enforcement of rules and regulations is generally viewed to be a good thing for the market as a whole, though the recent announcement will affect a number of individuals and companies who may see their investments decrease significantly in value.

While unsanctioned conversion of commercial titled properties into residential accommodation is, as it should be, quashed. The hope is still that there will remain channels by which developers and investors could, with the appropriate premiums having been paid and relevant approvals provided and checks put into place, convert properties to other higher and better use developments. As Shanghai continues to develop and evolve, so should the built landscape evolve to better meet the needs of its citizens and businesses.