The Cultural Background of Shanghai’s Real Estate Boom, and Why the Bubble May Not Bust Anytime Soon

When an American businessman asked me how much money he would need to start establishing his credibility and roots as an expatriate in Shanghai, I gave him an answer in three words: ONE-MILLION-CASH.   He was flabbergasted.

What would one million dollars buy him in Shanghai these days?  An 80 square meter (=861 square feet) apartment on the Madison Avenue equivalent in the former French Concession, and nothing left to decorate it (For comparison, see what one million dollars can buy you in Manhattan:  If he wants one with the view of the Bund and Pudong skyline, he will have to downsize it to maybe 21 square meters (=226 square feet).  Oh by the way, did I mention that you don’t even own the land on which the place sits?

So why is the real estate price in Shanghai sky high?  Economists are eager to give you the conventional answers: Shanghai is China’s most cosmopolitan city, the economic and business center of the country, and will soon eclipse Hong Kong as the new dazzling financial and trade capital of Asia.  Millions from the rest of China, and tens of thousands from Asia and beyond want to work and live there, to pursue opportunities that no longer exist back home.  Compare Beijing and Shanghai, two of the biggest cities in China: Beijing, with a population estimated to be between 20 and 21 million, sits on 16,801 square kilometers (=6,487 square miles) of land.  Shanghai boasts a population of 24 million, and its land is only 6,340 square kilometers (2,448 square miles).  At such density, it is no wonder that Shanghai’s housing price pressure is the highest in China.

A robust housing market contributes to rising GDP and is used as one of the criteria in the central government’s personnel decisions.  Mr. Tung, Chee-Hwa, a former chief executive of Hong Kong, was wildly unpopular during his reign, and resigned citing “poor health” before his term ended.  There were a number of reasons for his low approval rating; developers in particular blamed him, fairly or unfairly, when Hong Kong’s real estate market slumped.  Rumor has it that Mr. Tung had a heart-to-heart with Mr. Chen, Liangyu, a former mayor of Shanghai, who is currently serving jail time for corruption by the way, and implored him to do everything he could to sustain Shanghai’s housing price so as not to incur the wraths from residents and developers alike.  Rumor aside, according to the 2007 census, 31% of the Hong Kong’ population lived in public rental housing, and its Housing Authority subsidized 17.1% of the apartments sold, whereas I am not aware of any public housing or subsidy provided by Shanghai’s municipal government.

While supply and demand actually determine the on-going real estate price in Shanghai, I for one, want to offer some underlying cultural reasons.  When Chairman Mao declared that women could “hold up half of the sky,” one place in China had already heeded his pleading: Shanghai.  Once a small fishing village, Shanghai became a port city where foreign bankers, financiers, hustlers, refugees sought their fortunes during the colonial days, and its people were immediately exposed to the Western custom and culture.  Unlike other parts of China, local families were eager for their girls to receive Western-style education, and it was prestigious for young women to work in international trading companies and banks.  Shanghainese woman are stereotyped to have impeccable fashion styles, sharp judgment, smart and practical way of interacting with people from all walks of life.  They are assertive yet know when to step back, and always remember to remain cool and calm without becoming emotional.  To complement their woman, Shanghainese men have also adopted the Western way: accommodating, respectful, urbane and domestic.  For some men outside of Shanghai, Shanghainese women represent the illusion of glamour, sophistication and properness, and are the ultimate object of pride and prestige.

One unintended consequence of China’s “one child” policy is an imbalance of male and female population.  In big cities like Shanghai, educated young women are driven and career-oriented, and the norm is for them to marry men of equal or higher educational and income levels.  When considering potential suitors, a woman enlists her parents and friends to heavily scrutinize a man’s family background, education, income potential, financial capabilities, height, weight, and medical history.  In recent years, an apartment has become a non-negotiable requirement from a bride’s family so that their precious daughter does not have to share living space with her in-laws, and a man without an apartment immediately falls into the “un-dateable” category.  Most men living in Shanghai, regardless whether they were born and raised there, or whether they were originally from somewhere else, prefer dating and marrying Shanghainese women for the sake of their own careers and future child-rearing plans.  The number of apartments within city limit is limited, and soaring demand for marriage housing has sent its price steadily up for the last 15-20 years with no sign of easing any time soon.  As a matter of fact, pricing has gone up between 400% and 800% in most areas in the last nine years.  The joke is that thirty years ago, a couple would be ecstatic for having twin boys, and now, they would be devastated, because the parents and grandparents  must now start saving for not one, but two apartments.

While the real estate market in the US went through a major correction and is slowly showing signs of recovery, the one in Shanghai has remained red hot during the last decade.  Experts have been for years predicting the bubble is going to bust, and that has not materialized.   As long as Shanghai remains a magnet for attracting worldwide talent, investment and business opportunities, and as long as its women will not marry men without an apartment, the demand for housing will keep its price afloat.