Savills: Shanghai suspends the sale of commercial office projects

From 6 January 2017, municipal authorities suspended the sales of a number of commercial office projects in response to concerns being raised about illegal sales and unauthorized alterations to properties, such as the private installation of gas pipelines.

Commercially zoned properties used for private residences have been around 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, and were therefore favoured by individual investors. At the same time, developers adopted 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 if commercial housing projects could fetch a higher price.

As this practice has grown and as restrictions on residential properties have tightened, the government has now focused their attention on these commercial office projects. This announcement comes amid a flurry of announcements looking to tidy up regulations, better enforce existing policies and close loopholes evident in other parts of the real estate industry and the wider economy.

The government’s next course of action, however, remains unclear. Will these properties be given sales certificates after they adhere to the existing regulations? Will developers need to pay premiums to convert a land usage title to be in line with that of the property usage? Given the announcement last year that the central government was supporting the conversion of commercial properties into for-lease residential properties, how does this align with the suspension of sales of commercial office projects? Will these properties find their way onto the leasing market? One thing for certain is that new land auctions zoned for commercial usage may not garner the same attention that they once did.