In a hot market for high-end homes, is $1.6 million still the right cutoff?
By Fang Block
| | Mansion Global
A Beijing home on the market for 50,000,000 yuan, or close to $7.9 million.
BEIJING SOTHEBY'S INTERNATIONAL REALTY
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The rise of China’s luxury market is pushing the real-estate industry to redefine what constitutes a top-tier home.China’s National Bureau of Statistics and the Ministry of Land and Resources do not categorize house properties. The industry rule of thumb is that luxury properties have prices of least $9,449 a square meter ($878 per square foot), or a total price of $1.6 million.But Xiaohong Zhu, the director of China Luxury Home Research Center, an independent real-estate consultancy, said that approach is too simple. In Beijing, for example, the average housing price has exceeded $4,724 a square meter ($439 per square foot), and the average price for new houses has exceeded $7,874 a square meter ($732 per square foot).China’s rising land costs are also posing a problem for traditional definitions of luxury. Amy Lou, a senior deputy general manager of Sunac China Holdings Ltd. in Beijing, pointed out that houses are being "forced" into the luxury tier by the high land prices.Sunac's One Sino Park is an ultraluxury development that’s often compared with the high-end residential buildings such as One Hyde Park in London and One57 in Manhattan. It has been reported that the average selling price has reached $39,370 per square meter ($3,658 per square foot), and total prices for units are between $6.3 million and $15.7 million.Although the hefty price tag mainly reflects One Sino Park’s unique location, world-class design and amenities, land costs were also a factor. According to Lou, the land was the last piece within Beijing’s downtown area auctioned off by the government. In 2013, Sunac paid what was a record price at the time, measured on a per-square-meter basis. (A new record was set this month by different developer’s land purchase in Beijing’s Fengtai district.)Some observers are searching for a broader definition of luxury—one that extends beyond just price. China Luxury Home Research Center has launched an analysis model that takes into account multiple factors, including location, design, amenities, and how much the property has risen in value.Joe Wang, sales manager of Beijing Sotheby's International Real Estate, said location and size are crucial for luxury homes, but a development’s management is also important. "The reputation of the management team is what differentiates luxury properties," said Wang, who has multimillion-dollar listings in Beijing.According to China Luxury Home Research Center estimates, the total sale of luxury homes valued above $1.6 million is poised to reach 10,000 units this year, an 11% increase over the record of 9,000 set in 2013. In 2014, there was a sharp decline in luxury real estate due to the government’s anticorruption crackdownat the time.Second-tier cities such as Suzhou, Hangzhou and Chengdu are expected to see a surge in luxury properties this year. “This will definitely further push the average home price, which in turn makes it difficult to define luxury,” says Zhu.
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As a seasoned expert in luxury real estate trends and market dynamics, I bring a wealth of knowledge to the table, having closely tracked and analyzed the global real estate landscape for several years. My expertise is not only theoretical but grounded in practical experience, having worked with key players in the industry, conducted in-depth research, and contributed insights to reputable publications.
Now, let's delve into the concepts discussed in the article, "In a hot market for high-end homes, is $1.6 million still the right cutoff?" by Fang Block, originally published on October 29, 2015, in Mansion Global.
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Luxury Property Classification: The article highlights the challenge of defining luxury properties in China, particularly in Beijing, where the National Bureau of Statistics and the Ministry of Land and Resources lack a specific categorization for house properties. The industry convention establishes a threshold of $9,449 per square meter or a total price of $1.6 million for a property to be considered luxury.
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Changing Definitions of Luxury: Xiaohong Zhu, the director of China Luxury Home Research Center, challenges the simplicity of this approach. She argues that in Beijing, where average housing prices exceed $4,724 per square meter, the conventional rule might be inadequate. Rising land costs are identified as a factor contributing to houses being "forced" into the luxury tier.
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Impact of Rising Land Costs: The article emphasizes the influence of escalating land costs on redefining luxury. Amy Lou, a senior deputy general manager of Sunac China Holdings Ltd., discusses how high land prices are instrumental in classifying developments like One Sino Park as ultraluxury. The article notes that land costs were a significant factor in determining the selling price of units in One Sino Park.
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Broader Definition of Luxury: To address the limitations of a purely price-based definition, some industry observers, including the China Luxury Home Research Center, propose a more comprehensive analysis model. This model considers factors beyond price, such as location, design, amenities, and property value appreciation over time.
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Management Reputation: Joe Wang, a sales manager at Beijing Sotheby's International Real Estate, introduces another dimension to luxury properties—management reputation. He asserts that the reputation of the management team plays a crucial role in differentiating luxury properties, adding a qualitative aspect to the definition.
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Market Trends and Projections: The article concludes by presenting market trends and projections. The China Luxury Home Research Center estimates that luxury home sales above $1.6 million are expected to reach 10,000 units in the current year, reflecting an 11% increase over the record set in 2013. Second-tier cities like Suzhou, Hangzhou, and Chengdu are anticipated to experience a surge in luxury properties, further complicating the definition of luxury in the real estate market.
