Buy in Shanghai, the Paris of the East – Investing into classic town houses bound to become a rarity

Buy in Shanghai, the Paris of the East – Investing into classic town houses that are bound to become a high priced rarity



If someone asked you to choose your dream home, would it be a penthouse, a villa, a chalet or shikumen? Although you may never have heard of the latter, it is today’s ultimate must-have residential accessory: a traditional Shanghai townhouse with western elements originally built during the 1920s and 1930s. The nouvelle vague in property purchases is to acquire one of these rare buildings and renovate it. Prices have boomed since US, European and Australian buyers began transforming them back into fashionable residences.



The lure of these old townhouses must be attributed to the romance of swinging Shanghai in the 1920s.



A bustling metropolis steeped in exotic history which by 1930 had become the fifth largest city on earth. Shanghai's Art Deco residential architecture was reputedly the world's largest - although not the most well-kept. Most historic buildings have a bronze plaque detailing their original use and the area where most shikumen (meaning ‘stone doorway’) were built is now a particularly interesting mix of tucked-away shops, cafés, trendy bars and hip restaurants, a refreshing alternative to the city's generally megalomaniac streetscape.



Visitors and speculators from all over the world settled in Shanghai during the first third of the 20th century and an eclectic social structure built up with each community finding their niche area and opening their own clubs. The French Quarter with the French Club had a special concept of hospitality which included accepting Chinese members - only the rich and powerful got in – and this made it the most popular foreign club in town at that time.



French concession houses were often built in tree-lined boulevards with longtang between them, narrow alleys running from house to house which is a distinctive Shanghai architectural style. It was not unusual to find large estates tucked in pockets of green space in the middle of the city.



Typically, the houses have heavy stone walls and four floors often including a mezzanine. High ceilings allow plenty of natural light, though some windows are often small with metal grilles. Wooden front doors were often stable-style so the top could be swung open to allow air to circulate during the hotter months, while the lower part remained closed to keep children and pets safe inside. Although internal renovations can be made today, exteriors are now listed and cannot be altered.



In 2002, the price for an unconverted shikumen started at around £400 per sqm. Today they have soared to anything up to £5,000 per sqm. and they will continue to rise. If you’re game enough to embark on such a project, be prepared for a certain commitment. Most owners say the process is arduous but definitely worth the effort because it allows you to create a specialised modern interior in an architecturally important building. If you have vision, you can get exactly what you want. Inner courtyards, roof terraces and gardens in the middle of the city are much sought after oases.



Once you’ve acquired your property, generally expect to replace all plumbing and wiring as these will be at least sixty years old. The original house will be full of idiosyncrasies and will not have been maintained. Extra space can be reclaimed by demolishing internal walls and creating more usable floor area. Unkempt back gardens can be incorporated into the house and converted into kitchens or an extra bathroom. To keep a sense of the traditional, antique Chinese fixtures and fittings can be reclaimed from architectural salvage yards and reinstalled.



The city is humid so you have to make sure the floors are properly laid to avoid warping. Digging a ventilation channel at least one metre deep beneath the floors may well release a town of termites but these can be fumigated and then suzhou redwood boards can be laid which look traditional but are in fact of better quality than the original floors. Regular waxing makes them look darker and older. Shanghai houses were never built with radiators as they always used electric or free-standing units, so expect to install central heating. Your interior will then lend itself to an eclectic mix of art and furniture and the ancient and modern can easily be combined.



It is difficult for a non-Chinese to get a bank loan or mortgage and Shanghai’s municipal government have recently tightened the rules on foreign property ownership. They have mandated that homes be used for primary living purposes in an effort to head off speculative development. Quick property flippers have gone and the buyers are serious owner-occupiers.



Shikumen are becoming increasingly hard to find thus their desirability and the kudos of owning one. Demand is strong as many have been demolished to make room for big real estate projects. The few people selling them know they can demand a high premium and many have multiple owners which may involve buying out individual family members.



As far as property speculation goes, with Shanghai’s recognized role as the citadel of China's modern economy, and an important cultural, commercial, financial, industrial and communications centre, acquiring one of these beautiful classical buildings can only be regarded as a sound investment.





About the author: Swen Lorenz is a published book author, private investor, co-manager of several charity projects, and advisor in matters relating to fundraising, mergers & acquisitions, property, investments and restructurings. Previous positions include having been on the board of an AIM listed property fund with $150m in equity. Swen has lived and worked in the US, Germany, Switzerland and the UK, and currently resides on the Channel Island of Sark, a car-free island with a population of just 600 and its own parliament. During his extensive travels he can also be contacted via Stefan Gomoll, SG Law, SG House, Sark, Channel Islands (www.sglaw.co.uk - sg@sglaw.co.uk ) who is a lawyer (previously with Clifford Chance) who specialises in property transactions in Germany and Sark.Besides his interest in finance, equity investments, real estate, and alternative asset classes, Swen occasionally writes about unusual collectibles. His bi-lingual blog is published under www.undervalued-shares.com and it has readers from all over the world.