URBAN VIEW -1-

Contents:

2015 Issue No. 8

02 Data & Views Macro Economy

Urban Data - Shanghai Inventory

Residential Price Index

Urban Analysis - Real Estate Market

Costs of Building Materials &

Construction

23 Industry Focus Real estate market in the era of

negative interest rate

27 In-Depth Observation Merger of Jing’an and Zhabei

36 News Guidance Policy & Regulation

Real Estate Finance

Market Highlights

Hosted by: Urban Surveyors -

Shanghai Urban Real Estate

Appraisal Co., Ltd. (SUREA)

Chief Editors: Yuan Donghua, Xu

Jun

Deputy Editors-in-Chief: He Jian,

Ren Tingzhen

Executive Editor: Qin Yun

Associate Editors: Shao Minghao,

Huang Haisheng, Jiang Qimin, Lin

Feng

Editors: Lin Jingjun, Ren

Chenying, Shi Jian, Mi Huiying

Art Editor: Zhang Tao

Address: 15-18F New Golden

Bridge Plaza, No. 1 West Beijing

Road, Shanghai

Postcode: 200003

Website: www.surea.com

Email: surea@surea.com

Tel: 86 21 63589988

URBAN VIEW -2-

Data & Views

CPI returned to the level of 1 percent and YoY decline of PPI was

stabilizing

City index soared by 2.09% MoM, increasing by over 10% YoY

Business-oriented land supply returned to the high level

Volume of new supply reached a new high in busy season

The transaction volume of pre-owned homes exceeded 30,000 units

for the sixth consecutive month

URBAN VIEW -3-

Macro Economy

Trend of CPI & PPI, Jan 2013 ~ Sept 2015

Growth of Shanghai Real Estate Loans, Jan 2013 ~ Aug 2015

CPI (Sept)

Category YoY % MoM %

CPI 1.6 0.1

Food 2.7 -0.1

Tobacco, liquor and articles 3.8 -0.1

Clothing 2.8 0.8

Household appliances and

maintenance services

1.0 0.1

Health care and personal

articles

2.1 0.2

Transportation and

communication

-2.1 -0.4

Recreation, education,

culture articles and services

1.4 0.5

Residence 0.8 0.1

PPI (Sept)

Category YoY % MoM %

PPI -5.9 -0.4

Means of production -7.7 -0.6

Mining industry -21.2 -2.2

Material industry -11.4 -0.9

Process industry -4.8 -0.3

Means of livelihood -0.3 0.1

Food 0.0 -0.1

Clothing 0.8 0.4

Articles for daily use -1.0 0.1

Durable consumer goods -0.6 0.1

-100

-50

0

50

100

150

200

250

13-1

13-2

13-3

13-4

13-5

13-6

13-7

13-8

13-9

13-1

013

-11

13-1

214

-114

-214

-314

-414

-514

-614

-714

-814

- 914

-10

14-1

114

-12

15-1

15-2

15-3

15-4

15-5

15-6

15-7

15-8

RMBmillion

Growth of real estate development loansGrowth of personal housing loans

x 10

0

URBAN VIEW -4-

Urban Data

- Shanghai Inventory Residential Price Index 1. The city index saw a significant MoM increase of 2.09% and a YoY growth

over 10%.

In September 2015,

Shanghai Inventory

Residential Price Index was

176.66, a MoM increase of

2.09% and a YoY growth of

10.49%. The golden

September and silver

October of real estate market were coming. Driven by the previous favorable news in

various aspects, the inventory residential index still had some room for growth.

Shanghai Inventory Residential Price Index reached 176.66 in September 2015, a MoM growth of 2.09% and a YoY rise of 10.49%.

The city’s index increase over the past three months

Month Index MoM Increase

2015. 7 169.79 1.51%

2015. 8 173.04 1.91%

2015. 9 176.66 2.09%

URBAN VIEW -5-

2. Price index within the Inner Ring Road rose by 3.41% in this month.

The index increase

within the Inner Ring

Road was 3.41%, the

highest in this

month; the index

increase between the

Suburban and Outer

Ring Roads was

0.70%, the lowest in

this month.

3. 57 sections saw increases over 2%. Only Nanqiao New Town and Jinshan

New Town sections saw slight drop.

In September 2015, most of the sections saw increases in price index, among which

57 sections saw growth over 2%, 14 more than the number of last month. Only

Nanqiao New Town and Jinshan New Town sections saw slight drop.

Between OR and SR173.84 1.91%

Within IR 185.64 3.41%

Between IR and MR 187.48 2.26%

Between MR and OR 181.46 1.96%

Outside SR 143.38 0.70%

URBAN VIEW -6-

Urban Analysis——Land Market 1. Supply

1) Overall Supply

The supply of business-oriented land in September was the second highest for the

year, namely, 110.6 hectares. By contrast, the listing volume of industrial land saw a

significant MoM decline to 12.4 hectares.

2) Supply of Business-oriented Land by Type

By type, commodity residential land played a leading role on the market with 71.7

hectares listed in total; 16.7 hectares of mixed-use land (incl. residential use) were

supplied, ranking No. 2; 13.1 hectares of affordable housing land and 9 hectares of

retail/office land were supplied.

0

100

200

300

400

500

600

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09ha.

Trend of Land Supply

Business-oriented land Industrial land

0

20

40

60

80

100

120

140

160

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09ha.

Supply of Business-oriented Land by Type

Commodity residential land Retail/office land

Affordable housing land Mixed-use land (incl. residential use)

URBAN VIEW -7-

2. Transaction Volume

1) Overall Transaction Volume

Driven by the recovery of supply, the land transaction volume rebounded to 73.8

hectares in this month, a MoM jump of 378%; the transaction volume of industrial

land saw slight increase again, with 30.2 hectares traded.

2) Transaction Volume of Business-oriented Land by Type

By type, the transaction volume of commodity residential land remained No. 1, with

49.1 hectares transacted; 8.96 hectares of mixed-use land (incl. residential use) were

transacted; 8 hectares of affordable housing land and 7.8 hectares of retail/commercial

land were transacted.

0

100

200

300

400

500

600

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09ha.

Trend of Land Transaction Volume

Business-oriented land Industrial land

0

20

40

60

80

100

120

140

160

180

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09ha.

Transaction Volume of Business-oriented Land by Type

Commodity residential land Retail/office land

Affordable housing land Mixed-use land (incl. residential use)

URBAN VIEW -8-

3. Transaction Price

The average transaction price of business-oriented land rose to RMB 24,117/sqm. The

average transaction price of commodity residential land reached RMB 22,957/sqm

with multiple parcels of plots transacted at a premium. Driven by two prime plots, the

average transaction price of mixed-use land (incl. residential use) rebounded to RMB

65,017/sqm. The average transaction price of retail/office land was RMB 2,853/sqm,

with only one parcel in Chongming traded. The average transaction price of industrial

land declined to RMB 1,272/sqm in this month.

0

20000

40000

60000

80000

100000

120000

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09RMB/sqm

Average Transaction Price of Business-oriented Land

Business-oriented land Commodity residential land

Retail/office land Mixed-use land (incl. residential use)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09RMB/sqm

Average Transaction Price of Industrial Land

Industrial land

URBAN VIEW -9-

Urban Analysis——New Residential Market 1. Supply and Demand, Transaction Volume and Price

In September 2015, the city’s new commodity residential supply totaled 1,831,100

sqm, a MoM increase of 135.96% and a YoY growth of 41.24%; the transaction area

totaled 1,370,700 sqm, a MoM rise of 9.96% and a YoY rise of 77.42%. By far, the

monthly transaction volumes in the second and third quarters were both beyond

1,200,000 sqm. In this month, the transaction prices averaged RMB 29,817/sqm,

falling MoM by 0.87% and increasing YoY by 7.86%.

0

50

100

150

200

14-9 14-10 14-11 14-12 15-1 15-2 15-3 15-4 15-5 15-6 15-7 15-8 15-9

sqmMonthly Supply & Demand for Commodity Housing

Supply area Transaction area

x 10

000

-15

-10

-5

0

5

10

15

20

25

30

35

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

14-9 14-10 14-11 14-12 15-1 15-2 15-3 15-4 15-5 15-6 15-7 15-8 15-9

%RMB/sqm Average Transaction Price of Commodity Housing

MoM YoY Average transaction price

URBAN VIEW -10-

2. Hot Sections

Top 10 sections in terms of commodity residential transaction volume across the city in Sept 2015

Rank Section Supply Area

(sqm)

Transaction

Area

(sqm)

Average Transaction

Price

(RMB/sqm)

Turnover

(RMB

Billion)

1 Jiading New Town 101,539 90,935 21,143 1.923 2 Songjiang New Town 153,635 90,637 21,744 1.971 3 Lingang New Town - 86,244 9,828 0.848 4 Qilian - 58,376 28,239 1.648 5 Zhoukang 82,416 50,909 30,074 1.531 6 Jinshan New Town 162,548 48,703 11,105 0.541 7 Sijing 51,969 43,372 25,233 1.094 8 Qingpu Town 65,988 42,824 20,894 0.895 9 Nanxiang - 41,896 26,818 1.124

10 Xujing 54,487 37,864 35,771 1.354

Top 10 projects in terms of commodity residential transaction volume across the city in Sept 2015

Rank Project Name District Section

Transaction

Area

(sqm)

Average

Transaction

Price

(RMB/sqm)

1 Yihao Garden Nanhui Lingang New Town 69,333 8,576 2 City Oasis Baoshan Qilian 32,581 25,643 3 Leisure Town Qingpu Qingpu 24,827 19,704 4 Firenze Park Pudong Zhangjiang 21,534 52,002 5 Agile Star Garden Songjiang Songjiang New Town 21,026 17,021 6 Fontainebleau Jinshan Fengjing Town 17,386 11,109 7 Royal Scenery Jiading Jiading New Town 15,566 23,441 8 Jin Han Garden Jinshan Jinshan New Town 15,255 12,243 9 Honor Mansion Putuo Changzheng 15,064 45,414

10 Evergrande Royal Garden Songjiang Songjiang New Town 13,379 23,080

URBAN VIEW -11-

3. Hot New Supply

Top 10 projects in terms of new commodity residential supply across the city in Sept 2015

Rank Project Name District Section New Supply Area

(sqm)

1 The Beautiful City Pudong Huamu & Beicai 131,093 2 Jin Han Garden Jinshan Jinshan New Town 71,728 3 Begonia Bay Nanhui Zhoukang 59,914 4 Yulin Mansion Chongming Chengqiao 52,530 5 Emerald Riverside Pudong Yuansheng Yangjing 52,231 6 Cyan Interantional Zhabei Everbright City 50,285 7 Mutual Appreciate Pudong Caolu 48,894 8 The Capital of Jinshan Jinshan Jinshan New Town 47,059 9 Hongqiao Mansion Minhang Jinhongqiao 47,035

10 Elite Mansion Jinshan Jinshan Jinshan New Town 43,760

4. Transaction Structure

below 1m11%

100~15010%

150~20016%

200~30026%

300~40013%

400~5007%

above 5m17%

Transaction Structure of Commodity Housing by Total Price, Sept 2015

below 704%

70-9028%

90-14549%

145-20011%

200-3007%

above 3001%

Transaction Structure of Commodity Housing by Area, Sept 2015

below 1m11%

100~15014%

150~20012%

200~30023%

300~40013%

400~5008%

above 5m19%

Transaction Structure of Commodity Housing by Total Price, Aug 2015

below 704%

70-9025%

90-14550%

145-20012%

200-3008%

above 3001%

Transaction Structure of Commodity Housing by Area, Aug 2015

m = million

URBAN VIEW -12-

By area, the proportion of properties with an area below 90 sqm increased by 2.56

percentage points in total while the proportions of properties with an area between 90

to 300 sqm all slightly decreased.

By total price, the proportions of properties priced RMB 1.5-3 million rose by 6.71

percentage points in total. The proportions of properties priced RMB 1-1.5 million

and properties priced over RMB 3 million declined to different extent. The

proportions of properties priced RMB 1-1.5 million saw a larger decrease of 4.26

percentage points.

5. Inventory Change

As of end-September 2015, the city’s first-hand residential inventories totaled 85,115

units, increasing by 4,018 units compared with last month.

30000

40000

50000

60000

70000

80000

90000

100000

Sept Jan May Sept Jan May Sept

UnitsChange of Shanghai Residential Inventory, Sept 2013～Sept 2015

URBAN VIEW -13-

Urban Analysis——Second-hand Residential Market 1. Transaction Volume and Price

In September, the city’s second-hand residential transaction volume totaled 33,555 units,

slightly increasing by 4.44% MoM and rising by 186.82% YoY; the average price signed

on the Internet was RMB 25,249/sqm, up by 0.6% MoM and 22.38% YoY.

2. Transaction Volume by District

By district, among the 19 districts in Shanghai, 17 districts seeing MoM increase in

transaction volume, ranging from 0.21% to 18.87%. Fengxian ranked the No. 1 in terms

of monthly increase. In this month, only Huangpu and Songjiang saw MoM decrease in

transaction volume by 0.33%-1.17%.

15,000

18,000

21,000

24,000

27,000

30,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

14-9 14-10 14-11 14-12 15-1 15-2 15-3 15-4 15-5 15-6 15-7 15-8 15-9 RMB/m2

Transaction Volume and Price of Second-hand Housing

Transaction volume (unit) Average transaction price (RMB/㎡)

Units

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Baoshan

Changning

Chongming

Fengxian

Hongkou

Huangpu

Jing'an

Jiading

Jinshan

Luwan

Minhang

Nanhui

Pudong

Putuo

Qingpu

Songjiang

Xuhui

Yangpu

Zhabei

UnitsTransaction Volume of Second-hand Residential Housing by District, Aug vs Sept 2015

August September MoM

Average MoM

Growth

URBAN VIEW -14-

3. Hot Sections

Top 10 sections in terms of MoM increase in secondhand residential transaction volume in Sept 2015

Rank District Section No. of Units

Transacted MoM YoY

1 Minhang Jiangchuan Road 353 31.23% 155.80% 2 Fengxian Haiwan 100 26.58% 96.08% 3 Changning Gubei 129 24.04% 268.57% 4 Fengxian Nanqiao New Town 494 21.67% 165.59% 5 Nanhui Hangtou 182 21.33% 279.17% 6 Baoshan Yanghang 417 21.22% 390.59% 7 Putuo Changshou 200 21.21% 233.33% 8 Yangpu Huangxing 531 20.68% 205.17% 9 Jiading Zhenxin 209 19.43% 171.43%

10 Zhabei Pengpu 707 19.22% 236.67%

4. VISS Base Price

According to the statistics

of VISS system, in

September 2015, the city’s

mean of residential

quarters was RMB

32,268/sqm, up by 2.38%

MoM and 11.24% YoY; the city’s median of residential quarters was RMB 32,500/sqm,

up by 1.81% MoM and 9.59% YoY.

From the view of regional base prices on a monthly basis, in September, all the districts

saw growth varying from 0.05% to 3.69%.

BS CN CM FX HK HP JA JD JS LW MH NH PD PT QP SJ XH YP ZB

Aug 2015 1.99% 1.61% 0.35% 0.46% 2.42% 3.41% 2.96% 1.56% 0.25% 4.26% 1.31% 1.81% 3.25% 1.95% 0.89% 1.13% 3.02% 2.69% 1.82%

Sept 2015 2.80% 2.45% 0.55% 0.05% 2.49% 3.69% 2.33% 1.51% 0.23% 2.35% 2.18% 1.38% 2.68% 2.52% 0.64% 1.11% 2.20% 2.97% 3.57%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%MoM Change of Base Price by District, Aug 2015 vs Sept 2015

Mean Median

URBAN VIEW -15-

Central districts still saw larger growth, all of which were over 2%. Huangpu district

ranked No. 1 in terms of monthly increase.

By section, all the 121 sections saw growth of base price in September, and there were

118 sections seeing MoM increase in base price and 3 sections seeing MoM decrease.

The top five sections in terms of base price increase were all influenced by school district

apartments and sub-new apartments.

5. Transaction Structure

Top 5 sections in terms of increase Top 5 sections in terms of decrease

Yangjing

Daning

Songbao

People’s Square

Huamu

46,103 48,507 5.21%

37,617 39,527 5.08%

26,982 28,277 4.08%

46,283 48,418 4.61%

43,389 45,315 4.44%

Haiwan

Zhujiajiao

Nanqiao New Town

8,993 8,944 0.54%

12,991 12,978 0.10%

16,970 16,967 0.01%

below 7043.22%

70-9023.11%

90-12018.48%

120-1509.57%

150-1802.68%

180-3002.55%

above 3000.40%

Transaction Structure Second-hand Housing by Area, Sept 2015

below 0.5m4.39% 0.5m~1m

14.19%

1m~1.6m29.10%

1.6m~2m13.75%

2m~3.3m24.43%

3.3m~5m8.33%

above 5m5.81%

Transaction Structure of Second-hand Housing by Total Price, Sept 2015

below 7042.07%

70-9022.99%

90-12019.31%

120-1509.97%

150-1802.61%

180-3002.66%

above 3000.39%

Transaction Structure Second-hand Housing by Area, Aug 2015

below 0.5m4.69% 0.5m~1m

13.59%

1m~1.6m28.37%

1.6m~2m13.88%

2m~3.3m24.99%

3.3m~5m8.85%

above 5m5.62%

Transaction Structure of Second-hand Housing by Total Price, Aug 2015

m = million

URBAN VIEW -16-

By total price, in September, the transaction proportions of second-hand properties priced

RMB 0.5-1.6 million rose by 1.33 percentage points in total; while the transaction

proportions of second-hand properties priced RMB 2-5 million decreased by 1.08

percentage points.

By area, the proportions of properties with an area below 90 sqm expanded across the

broad. The proportion of properties with an area below 70 sqm mounted up by 1.15

percentage points. The proportions of properties with an area of 90-120 sqm saw the

largest decrease, namely, 0.83 percentage points.

URBAN VIEW -17-

Urban Analysis——Retail / Office Market 1. Supply

1) Monthly Retail / Office Supply

The new supply of retail properties, declined to 223,000 sqm in this month. By contrast,

the office supply rose to 484,000 sqm, the second highest in the year.

2) Retail / Office Supply by District

In terms of the new supply in office sector, Pudong led the ranking of supply volume

with over 300,000 sqm, driven by the Shangyue Center project. In retail sector, Pudong

was also the No. 1 with 76,000 sqm supplied, followed by Jinshan with 30,000 sqm

supplied.

0

10

20

30

40

50

60

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09sqm

Trend of Retail / Office Supply

Retail property Office property

x 10

000

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Baoshan

Chongming

Fengxian

Hongkou

Huangpu

Jiading

Jinshan

Jing'an

Minhang

Pudong

Qingpu

Songjiang

Xuhui

Yangpu

Zhabei

sqm

Retail / Office Supply by District, Sept 2015

Retail property Office property

x 10

000

URBAN VIEW -18-

2. Transaction Volume

1) Monthly Retail / Office Transaction Volume

In the “golden September”, the transaction on retail market saw significant recovery and

the transaction on office market saw slight uptrend. The retail transaction volume totaled

125,000 sqm, a MoM increase of 21.3%. The office transaction volume rose by 4.6% to

211,000 sqm.

2) Retail / Office Transaction Volume by District

By district, Pudong won the sales No. 1 in retail sector, with 46,000 sqm transacted.

Baoshan and Qingpu were the No. 2 and No. 3, with 17,000 sqm and 14,000 sqm

transacted, respectively. In the office sector, Xuhui was the sales No. 1, with 41,000 sqm

transacted. Jiading remained No. 2, with 39,000 sqm transacted.

0

5

10

15

20

25

30

35

40

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09sqm

Trend of Retail / Office Transaction Volume

Retail property Office property

x 10

000

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Baoshan

Chongming

Fengxian

Hongkou

Huangpu

Jiading

Jinshan

Minhang

Pudong

Putuo

Qingpu

Songjiang

Xuhui

Yangpu

Zhabei

sqm

Retail / Office Transaction Volume by District, Sept 2015

Retail property Office property

x 10

000

URBAN VIEW -19-

3. Transaction Price

Compared with last month, the average transaction price of both retail and office

properties saw slight increase in this month. The average price of retail properties was

RMB 23,124/sqm, a MoM growth of 8.5%. The average price of office properties

declined to RMB 24,028/sqm, a MoM rise of 10%.

4. Inventory Change

In September, the office inventories jumped to 9,558,200 sqm, further approximating to

the high level of office inventories. The retail inventories totaled 9,982,700 sqm and the

supply-to-demand ratio was 1.78. Based on the average absorption in the past 12 months,

the sale period would be as long as 80.7 months.

0

5000

10000

15000

20000

25000

30000

35000

40000

14-09 14-10 14-11 14-12 15-01 15-02 15-03 15-04 15-05 15-06 15-07 15-08 15-09RMB/sqm

Trend of Average Transaction Price

Retail property Office property

400

500

600

700

800

900

1000

1100

sqm

Monthly Change of Retail / Office Inventory

Retail property Office property

x 10

000

URBAN VIEW -20-

Cost of Construction Materials

Prices of steel, cement, yellow sand and commodity concrete in Sept 2015

No. Material name Aug 2015 Sept 2015 Increase or decrease

1 Wire price (Φ8mm) (RMB/ton) 2465.33 2,371.00 -3.98%

2 HRB400 rebar (18mm) (RMB/ton) 2312.00 2,164.33 -6.82%

3 HRB400 Rebar (25mm) (RMB/ton) 2339.00 2,190.33 -6.79%

4 Ordinary Portland cement (strength grade

42.5) (RMB/ton) 265.00 266.67 0.63%

5 Yellow Sand (medium-coarse)

(RMB/ton) 58.00 56.67 -2.35%

6 Pump Concrete C30 (particle size 5-25)

(RMB/m³) 336.00 333.33 -0.80%

URBAN VIEW -21-

Construction Cost Analysis Indicators

I Project Summary

Project name XX Kindergarten GFA 8,641 m2

Project location Pudong New Area – beyond the

Outer Ring Road Height

13.1 m (the first floor is

4.2 m, the second and

third floors are 3.6 m

Structure type Frame structure Total

floors 3 floors aboveground

Function Kindergarten Method of

charging

Charge by BOQ, prices

from 2010.4-2013.7

II Construction Cost Indicators

No. Item Total cost (RMB) Index per sqm

(RMB/m2) Percentage

Cost for engineering

& installation 39,359,500 4,554.97 100.00%

I Engineering works 15,635,000 1,809.40 39.72%

1 Soil (Stone) works 121,400 14.05 0.31%

2 Piling & foundation

(incl. soil protection) 1,351,000 156.35 3.43%

3 Masonry 616,300 71.32 1.57%

4 Concrete and rebar

concrete 11,884,100 1,375.32 30.19%

5 Factory warehouse

doors, special doors 292,800 33.88 0.74%

6 Roofing &

waterproofing 579,300 67.04 1.47%

7

Anti-corrosion,

insulation, thermal

insulation

253,200 29.30 0.64%

8 Other work 536,900 62.13 1.36%

II Decoration works 11,797,000 1,365.24 29.97%

1 Ground & floor 2,455,500 284.17 6.24%

2 Doors and windows 588,700 68.13 1.50%

3 Cylinder & wall 1,016,500 117.64 2.58%

4 Ceiling 2,030,200 234.95 5.16%

5 Paints, coatings, wall

paper 569,900 65.95 1.45%

6 Other work 5,136,200 594.40 13.05%

III Installation works 10,185,000 1,178.68 25.88%

URBAN VIEW -22-

1 Electrical Engineering 3,501,200 405.18 8.90%

2 Water supply &

drainage and gas 859,400 99.46 2.18%

3 Firefighting works 1,436,500 166.24 3.65%

4 Ventilation and air

conditioning works 2,427,100 280.88 6.17%

5 Intelligence works 1,680,900 194.53 4.27%

6 Elevator works 279,900 32.39 0.71%

IV Measure fees 1,742,500 201.65 4.43%

Shanghai Urban Construction Cost Consulting Co. Ltd.

URBAN VIEW -23-

Industry Focus

Real estate market in the era of negative interest rate

Negative interest rate may drive the further recovery of the market.

Don’t invest in real estate market blindly. Beware of risk.

The era of negative interest rate is a good time to buy housing.

URBAN VIEW -24-

Real estate market in the era of negative interest rate

According to the data from State Statistics Bureau, CPI in August rose by 2.0% YoY.

On the other side, the one-year benchmark deposit interest rate was 1.75% after multiple

times of reduction. This means that CPI has been higher than the one-year benchmark

deposit interest rate – we are in the era of negative interest rate again.

There were 4 periods of negative interest rate in China, during which real estate prices

all went up. In addition to China, real estate prices also rose significantly during the

periods of negative interest rate in western countries and Japan. Therefore, many people

think real estate sector will first benefit from the negative interest rate as capitals are

forced to flow to asset sectors due to the depreciation of deposit. However, some market

participants think investing in real estate sector blindly may undertake much risk. In this

section, our discussion will revolve around the influence of the era of negative interest

rate on real estate market.

URBAN VIEW -25-

Urban View:

Shao Minghao

Project Director

Shanghai Urban Real Estate Appraisal Co., Ltd.

Reviewing the past periods of negative interest rate in China, the positive stimulus on

real estate market depended on the following three conditions: firstly, residents’

(individual) deposits accounted for a large percentage of the large scale bank deposits,

and negative interest rate drove them out of this investment channel; secondly, there

were only a few investment channels with low entry requirements in China so the capital

from bank deposits could only flow into a few limited sectors, such as stock market, real

estate market; thirdly, among the limited investment channels, real estate sector had the

highest risk-reward ratio.

Now, in the autumn of 2015, are these three conditions still satisfied? First of all, from

the perspective of individual deposit, many financial products represented by Yuebao

have already attracted deposits from banks. The current scale and percentage of

individual middle- to long-term deposits are incomparable with the earlier ones. At

present, the interest rates of financial products average over 3%, much higher than that

CPI. Therefore, the spillover effect on bank deposits caused by negative interest rate has

been greatly moderated.

Secondly, from the perspective of investment channels, in these years, various bank

financial products emerged in endlessly, and multiple short-selling mechanism, QDII

and even direct purchase of foreign exchange have already been residents’ important

investment channels. As investing and financing channels for individuals are

increasingly enriched, the attraction of real estate sector to investment gradually

decreases.

URBAN VIEW -26-

Thirdly, the income-risk ratio of investment in real estate sector is not as satisfactory as

before. As we all know, there is no market only suffering downturn and not seeing

upturn and vice versa. Over the past decade, the real estate market only saw upturn and

has not suffered downturn, during which much risk has been accumulated. Moreover,

since last year, under the continuous relaxation of real estate market on national and

local levels, only the real estate market in first-tier cities and several second-tier cities

witnessed recovery. In the third- and fourth-tier cities seeing downturn, real estate has

lost its ability of preserving or increasing the value.

From the above analysis, we can find that the three conditions bringing positive stimulus

of negative interest rate to the real estate market all have greatly changed, compared

with the same periods in the history. This kind of change indicates that negative interest

rate can hardly drive residents’ investment into the real estate sector and therefore the

stimulus of negative interest rate may be no longer as significant as before.

URBAN VIEW -27-

In-Depth Observation

Merger of Jing’an and Zhabei

Location value comparison between Jing’an and Zhabei

Educational resource comparison between Jing’an and Zhabei

Home price comparison between Jing’an and Zhabei

Why the home price in Zhabei rose prior to the news of merger?

URBAN VIEW -28-

Merger of Jing’an and Zhabei

Basic information of Jing’an and Zhabei

Jing’an District

Jing’an District is located in the city center of Shanghai, within the Inner Ring Road.

It neighbors 6 districts. Jing’an District is named after the Jing’an Temple therein. It is

the window of Shanghai’s central business and commercial areas as well as foreign

exchange. Jing’an District has jurisdiction over 5 sub-districts of Jing’an Temple,

Caojiadu, Jiangning Road, Shimen Road (No. 2) and West Nanjing Road.

Zhabei District

Zhabei District is located in the north part of Shanghai’s central area. It is adjacent to

Hongkou and Baoshan Districts on the east, neighbors Putuo and Baoshan Districts on

the west, borders on Baoshan on the north, and is separated from Huangpu and

Jing’an Districts by the Suzhou Creek on the south. There is Shanghai Station and

Beijiao Station of railway, metro line 1, 3, 4, 8, Inner Ring Road, South-North

Elevated Road and Middle Ring Road in the district. Zhabei District has jurisdiction

over 8 sub-districts of West Tianmu Road, Beizhan, Baoshan Road, West Zhijiang

URBAN VIEW -29-

Road, Gonghexin Road, Daning Road, Pengpu Xincun, Linfen Road and Pengpu

Town.

Location value comparison between Jing’an and Zhabei

Location plays a crucial role in real estate value. However, its importance reflects not

only on the value of real estate but also on various aspects of social life. Good

location always means the concentration of plenty of good resources, such as

complete infrastructures, full range of living facilities, well-developed transportation

system, mature living environment and superior humanistic culture.

URBAN VIEW -30-

Jing’an District is situated in the best location within the Inner Ring Road, where

there is the “No. 1 commercial street in China” – Nanjing Road (East Nanjing Road

and West Nanjing Road). Moreover, Plaza 66, CITIC Pacific Plaza and Westgate Mall

compose a “golden triangle”, and Wheelock Square, Park Place, Kerry Center Ph II

and other plazas form a “golden five-star”. Besides, there are many stores of famous

brands. The famous brands in this business area total over 1200, including more than

750 international brands. About 80% of the global top brands have flagship stores or

franchised stores here. Therefore, West Nanjing Road now is the top shopping place

in Shanghai.

On the other side, in old Shanghai, the west and middle parts of French Concession

and Shanghai International Settlement were called “upper corner”, where there were a

lot of compradors, foreigners and socialites. The counterpart “lower corner” referred

to the non-concession area and rural-urban fringe area, where many external people

from other provinces lived. In the old times, Jing’an belonged to the “upper corner”

while Zhabei belonged to the “lower corner”.

URBAN VIEW -31-

Zhabei District is also located in the downtown of Shanghai. However, the

development of its south part and north part is imbalanced due to its large coverage.

The main commercial areas in Zhabei include Daning commercial area and

Everbright city commercial area. Currently, it is just a district commercial center, the

scale and quality of which are not comparable with those of Jing’an District. But

according to long-term planning, Daning commercial area has been positioned as a

municipal commercial center, which will improve Zhabei’s commercial value with the

proposed Suhe Creek commercial center.

After the merger of the two districts, the location value of Jing’an may be reduced.

The large area of Zhabei will share the concentrated location value of Jing’an. And the

difference between “upper corner” and “lower corner” will to some extent lower the

position of new Jing’an in people’s mind.

URBAN VIEW -32-

While Jing’an enjoys advantages of economic strength, urban management and

infrastructures, it is faced with the lack of space for development. By contrast, Zhabei

owns sufficient space for future development. From long-term perspective, the merger

of the two districts will help reorganize the existing space resources, promote the

balanced development of central areas and facilitate the overall urban renewal.

Educational resource comparison between Jing’an and Zhabei

In terms of the total quantity of key educational resources, Jing’an seems to be a little

inferior to Zhabei. However, the area and population of Zhabei are both much larger

than those of Jing’an. From this point of view, in fact, the educational resources of

Jing’an are superior to Zhabei’s. Moreover, Jing’an has Primary School Affiliated to

Shanghai No. 1 Normal School and Jing’an No. 1 Primary School, which are typical

key primary schools; while the primary schools in Zhabei are not as renowned as

those in Jing’an.

List of educational resources in Jing’an and Zhabei

Jing’an Zhabei

Key kindergarten

Weihai Road Kindergarten Middle Zhijiang Road

Kindergarten

Nanyang Experimental Kindergarten

Zhabei Experimental Kindergarten

Nanxi Kindergarten Anqing Kindergarten

Key primary school

Jing’an Education College Affiliated School

Zhabei No. 1 Central Primary School

Primary School Affiliated to Shanghai No. 1 Normal

School

Zhabei No. 3 Central Primary School

Jing’an No. 1 Primary School Zhabei No. 2 Central

Primary School

----- Zhabei Experimental

Primary School

Key middle school

Jing’an Education College Affiliated School

Pengpu Middle School

Yucai Junior School Fenghua Middle School

URBAN VIEW -33-

Shixi Junior Middle School Yangbo Middle School

Shanghai International University Jing’an Language

High School Qingyun Middle School

----- Shibei Middle School

Municipal key high school

East China Model High School

Jiulong Model High School

Shixi High School Shanghai No. 60 High

School

Yucai High School Huiming High School

----- Shibei High School

----- Xinzhong High School

District key high school

Shanghai No. 1 High School Zhabei No. 8 High

School

Minli High School Pengpu High School

The High School Affiliated to Shanghai Theatre Academy

Fenghua High School

The merger of the two districts may influence the enrollment of key kindergartens and

high schools there. Both Jing’an and Zhabei have three model public kindergartens,

enrolling students in the district only. However, the population of Zhabei is much

larger than that of Jing’an so the number of existing model kindergartens cannot meet

the demand. After the merger, this problem in Zhabei will be mitigated but at the same

time, for Jing’an, the competition may be fiercer. So is the case with high school

enrollment.

Home price comparison between Jing’an and Zhabei

According to the movements of quarterly average transaction price of commodity

housing in Jing’an and Zhabei, the overall trends of the two districts were in line with

each other. The fluctuation in Jing’an was comparatively significant, mainly because

the transaction volume was small and the price was sensitive to the influence of single

property. In terms of the price of pre-owned homes, the trends of the two districts kept

URBAN VIEW -34-

flat. Overall speaking, the difference of average residential transaction prices in

Jing’an and Zhabei stayed in a relatively stable range. The commodity residential

price in Jing’an was about 72.31% higher than that in Zhabei on average; while the

pre-owned residential price in Jing’an was 74.88% higher than that in Zhabei.

According to the historical data, the difference between commodity residential prices

in Jing’an and Zhabei was quite big during 2011 to 2014. This was mainly because the

development of residential market was restricted by the regional environment,

infrastructures and facilities as well as the insufficient educational resources. Notably,

since 2014, the quarter-on-quarter increases of commodity residential price and

pre-owned residential price in Zhabei have been higher than those in Jing’an at most

time, showing a robust upward trend.

URBAN VIEW -35-

Why the home price in Zhabei rose prior to the news of merger?

Actually, despite the big difference between the home prices in Jing’an and Zhabei,

the real estate market in Zhabei has already been boosted by some eye-catching

events before the merger.

The first one was the “Daning land king” acquired by Franshion Properties in 2014.

Its final unit price was as high as RMB 47,609/sqm, which was not only much higher

than the price of previously transacted plots in this area but also beyond the base price

of the surrounding projects being sold at that time. Under the impact of land king, the

year-on-year increases of commodity residential price and pre-owned residential price

in Zhabei were higher than those in Jing’an in that quarter. The growth continued, and

now the average price of Franshion Daning Palace built on that plat has exceeded

RMB 70,000/sqm. The project thus became an iconic luxury project second only to

Suhe Creek.

URBAN VIEW -36-

This year, Everbright city section with prime location launched a parcel of land for

large-scale commercial/residential/office/cultural/sports use, which attracted market

URBAN VIEW -37-

attention again. The plot was finally acquired by Financial Street at RMB 8,815

million, with a premium of as high as 50%. Covering a GFA of about 350,000 sqm,

the site will be built into a new landmark in the Everbright City Section, which will

help improve the business atmosphere in this area. The upgrade of supporting

facilities will have positive externality on the residential properties in the vicinity,

laying a basis for price increase.

From all above, we can find that the gap between the average prices of commodity

homes in Zhabei and in Jing’an has been narrowing since 2014. The prime plots have

already driven the price of new homes in Zhabei. The price in Daning section, which

is closest to the price level in Jing’an, was also boosted by the above-mentioned land

king project.

URBAN VIEW -38-

News Guidance

With capital percentage reduced, middle- to high-end residential

development loosened

NDRC lowers housing transfer charges to promote real estate

consumption

CBRC adjusts down payment requirement for first ordinary homes

Ministry of Housing and Urban-rural Development issues notice on

the implementation of granting HPF loans to other locality

Land market performances represent divergence between first-tier

cities and second- and third-tier cities

URBAN VIEW -39-

Policy: With capital percentage reduced, middle- to high-end residential development loosened

On 14th September, the State Council website promulgated the Notice on Adjusting

and Improving the Capital System of Fixed Asset Investment Projects. In addition to

lowering the capital percentage of urban and transportation infrastructure and corn

deep-processing projects, the Notice stipulated that the capital percentage of all the

real estate development projects will be adjusted to 25% from 30%, excluding

affordable housing and ordinary commodity housing projects.

Urban View:

This was the second time that

the government had lowered

the capital percentage since

2009. From macro perspective,

it was an encouraging policy

based on the languid economy

growth because the growth of

investment in both fixed assets

and real estate development were slowing down. Notably, there were some differences

in the stipulation for different residential projects. Affordable housing and ordinary

commodity housing projects were not included in the reduction scope; while the

capital percentage of middle- to high-end residential projects and commercial, office

projects were all reduced. This was not only because the former already enjoyed

preferential policies but also indicated the government’s worry about the high

inventories of affordable housing and ordinary commodity housing in most third- and

fourth-tier cities. From the perspective of investment risk, with the decrease of birth

rate, the rigid demand for commodity homes would gradually decline accordingly in

the long term. Residential market had to consider the move-up demand when meeting

the rigid demand.

URBAN VIEW -40-

Policy: NDRC lowers housing transfer charges to promote real estate consumption

Recently, National Development and Reform and Ministry of Finance issued a notice

on the charging standard of administrative fees. The notice pointed out that as of 15th

October this year, the housing transfer charges would be lowered. By detail, the

transfer charges of new commodity homes were reduced to RMB 2 from RMB 3, and

transfer charges of inventory homes were lowered to RMB 4 from RMB 6. At the

same time, provinces could further lower the transfer charges in middle and small

cities based on local conditions to reduce the burden of home-purchase fee on

residents.

Urban View:

Housing transfer charges are paid by buyers when registering property ownership

certificate in the transaction of new homes; while in the transaction of second-hand

homes, transfer charges are required when transferring ownership and should be paid

by both buyer and seller but in practice it is usually paid by the buyer.

Actually, the transfer charges are not expensive and only account for a very low

percentage in home-purchase cost. Therefore, the cut is limited and will not greatly

attract home purchasers. However, we should pay attention to the implication of this

policy. The government’s efforts to promote real estate consumption in the “golden

September” and “silver October” showed its intention to support stable and sound

development of the real

estate market. It is a

kind of extension of

previous relaxation of

policies on real estate,

which targeted the

long-term development

of the real estate sector.

URBAN VIEW -41-

Finance: CBRC adjusts down payment requirement for first ordinary homes On 30th September, People’s

Bank of China and China

Banking Regulatory

Commission released the Notice

on Issues concerning Further

Improving the Differential

Housing Credit Policies. It said

that in cities free of purchase

limitation, the down payment

percentage would be adjusted to

no lower than 25% for first homes under commercial loans, and it pointed out that the

minimum percentage of down payment for homes under commercial loans should be

decided according to local conditions and the state’s policy.

Urban View:

Because of this policy, the down payment for first ordinary commodity homes was

lowered from 30% to 25%. Discussions about whether this reduction of merely 5%

was enough to stimulate the sluggish real estate markets in the third- and fourth-tier

cities could be heard without end. This just reflected the difficulty which the

administration was faced with – the policy should boost the languid market in the

third- and fourth-tier cities while at the same time it cannot stimulate the rising market

in the first-and second-tier cities; the administration hopes that the real estate market

can bring positive influence on the economic downturn while at the same time it

cannot go back to the old way of rescuing economy only by real estate market. For all

above, 5% may be just a try. If it is effective, it will end here; if it is ineffective, then

the government will do more. All in all, this time, real estate market played an

important role again in stopping the economic downturn.

URBAN VIEW -42-

Market: Ministry of Housing and Urban-rural Development issues notice on the implementation of granting HPF loans to other locality On 21st September, Ministry of Housing and Urban-Rural Development issued a

notice on the implementation of granting HPF loans to other locality to support

employees’ demand for buying homes in other locality.

Urban View:

Granting HPF loans to other locality

is not a new policy in real estate

sector. However, this notice was an

elaboration and emphasis on the

implementation, which defined the

procedures of applying personal

HPF loans in other locality.

Strengthening the connection

between HPF in different cities can

help promote the residential market of different cities and thus encourage residential

consumption while at the same time improving the use efficiency of HPF. For the

third- and fourth-tier cities with insufficient housing demand, the implementation of

this policy can effectively encourage those who live in the first and second-tier cities

with household registration in third and fourth-tier cities to buy homes in the places of

household registration or even surrounding cities to improve their living conditions

and mitigate the high inventories in these cities. However, for the first-tier cities in

great demand for housing, such as Shanghai, the implementation of this policy may

confront predicament. The influence of this new policy will vary significantly by city.

In the short run, the connection between middle and small cities and the connection

within a province are feasible; while the connection between large, middle and small

cities need further thought and discussion.

URBAN VIEW -43-

Market: Land market performances represent divergence between first-tier cities and second- and third-tier cities

In the middle of September, Ministry of Finance published the data of August, which

showed that the income from land granting from January to August declined by over

RMB 1 trillion compared with the same period in last year, down 38.4%. The sharp

decrease on land market has been a common phenomenon since this year. Even when

the sales of real estate saw a significant recovery in August, only the land market in a

few first and second-tier cities was limitedly driven. Despite of the fall of supply

volume, there were still many land parcels failing to be transacted. There were totally

1531 parcels of land transacted across over 300 countries nationwide, down 30% and

36% MoM and YoY, exceeding the decrease of supply.

Urban View:

At present, the performances of

land market all over the country

showed difference. On one side,

land kings created new high of

average transaction price in first

-tier cities. On the other side,

many second and third-tier cities

suffered from imbalance of

supply and demand and many auctions failed on the land market. The totally different

performances of land market fully reflected developers’ different views on the

prospects of real estate market of different cities. The fast recovery of real estate

market in first-tier cities is a kind of guarantee for developers, although most supply

in these cities is from the suburbs for lack of urban land resources. The declining

tendency in third- and fourth-tier cities with insufficient demand, high inventories and

large supply volume scares developers off these cities and makes them extremely lack

confidence in investment.

URBAN VIEW -44-

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