(Bloomberg) -- A $15 million penthouse was snapped up hours after it went on sale. More than 200 homes priced from nearly $5 million were taken in less than a day. Apartments worth $3.8 million were five times oversubscribed. 

Shanghai’s luxury real estate market is a bright spot in China’s bleak property sector. It’s the only one among the country’s mega cities that’s still attracting people to put down money in an asset class that has otherwise been abandoned. 

The move is driven by rich Chinese — many dwelling in the Yangtze River Delta region that Shanghai is part of — who are parking their money only in surefire investments. The recent buyers still see luxury residences as an optimal choice, given Shanghai’s financial hub status, the scarcity of supply of such dwellings and the discount that new offerings boast compared with existing ones.  

The trend underscores the diverging outlook for real estate in a country with big wealth gaps. Outside of Shanghai, China’s majority of cities — including even the capital of Beijing — are still struggling to revive transactions and prices, even after the government pushed out its strongest yet stimulus measures. 

“An uncertain economic outlook drives the wealthy to park money somewhere conservative,” said Song Hongwei, research director at property agency Tospur Real Estate Consulting Co. “When they’re short of better channels to allocate assets, core real estate in Shanghai’s prime area becomes a handy choice.”

In the first five months of 2024, sales of new Shanghai residences offered at 30 million yuan ($4 million) or more already topped annual units sold in each of the past seven years, Tospur data showed. 

Their average price gained 18% from last year. That dwarfs a 0.6% on-year uptick seen in the entire new-home market in Shanghai — already the best performer among 70 major cities tracked by the statistics bureau.

A Bloomberg gauge of Chinese developer shares rose as much as 2.2% on Tuesday morning.

Policy Easing 

The buyers are a mixture of locals and outsiders, many from the neighboring Zhejiang and Jiangsu provinces, according to sellers and developer advisers. Shanghai allows non-local homebuyers if they’ve paid income taxes for three years. 

They’re taking advantage of the recent policy easing. Down-payment thresholds in Shanghai have been lowered to 20% for a first home, and as low as 30% for a second. A third home is allowed if a family has at least two children, and at least one of them is under 18 years old. 

Shanghai also relaxed the cap on prices for new homes, a tactic the government used to temper the property bubble when values were soaring. A number of luxury projects including Shanghai Arch, which sits on the waterfront of the famous Bund, were sold at about 170,000 yuan per square meter, 13% higher than the previous limit, according to people familiar with the matter. 

Shanghai Arch, developed by Hong Kong-based Sun Hung Kai Properties Ltd., witnessed the frenzy recently. Its 212 upscale condos lured more than 1,000 prospective buyers and sold out on the opening day. Its $15 million penthouse was purchased within hours. 

In the city’s French Concession, all 75 units of Singapore-based CapitaLand Group Pte.’s the Paragon were sold online in 45 minutes. They were sold for about 20% less than two second-hand units of similar range in the neighborhood marketed by Landz Realtors. 

“Those who can afford such prime projects have waited for more than two years,” said Stephanie Zhou, who has been facilitating the sales of prime real estate in Shanghai for more than two decades. “Some new projects were priced lower than existing ones they’ve checked during the market peak, and they see them as a bargain.” 

Stark Contrast

Sunac China Holdings Ltd.’s 204 condos at One Sino Park lured 4,000 prospective buyers, even though the cheapest unit was nearly $5 million, a record in Shanghai this year. 

A Hongkong Land Holdings Ltd.-backed project sold at an average price of $3.8 million and was five times oversubscribed. 

Demand is so strong that people are even willing to purchase luxury homes that haven’t been built. Increasingly in China buyers have become wary of developers failing to deliver on pre-sold apartments. 

It stands in stark contrast with other cities including Beijing, where luxury projects are failing to attract buyers. Shanghai’s more affluent and entrepreneurial demographic is helping with the rebound, whereas the capital has more people working for state-owned enterprises and the government, meaning they already have access to government-subsidized housing.  

That said, the trend is expected to cool down in the second half, after pent-up demand is released, according to Lu Wenxi, an analyst at property agency Centaline Group. 

Tospur’s Song cautions that only projects in core locations are expected to maintain traction. “The discount of luxury properties compared with existing projects is narrowing, so wealthy buyers have become more rational,” said Song. 

(Updates with share prices. An earlier version of the story corrected unit to square meter in the 10th paragraph)

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