In Shenzhen, the decline in volume of new residences, combined with sharp decreases of house purchases for investment and consequent property auction failures, have proved that the “turning point” inside the real estate market in Shenzhen, a special economic zone in south China’s Guangdong Province, has already come, much earlier than market expectations.
The property market in 2007 can be described as “rare”, it was extremely hot during the first half of last year, then it experienced depression during the second half,” said Liang Wenhua, General Manger of Shenzhen-based Shihua Real Estate, during an interview with the China Business News.
In the spring of last year, hosing prices in Shenzhen rose sharply. The monthly average price increase for newly built commercial houses reached 13.5 percent in the first ten months, making it the fastest among China’s 70 large and medium-sized cities, according to statistics from the National Development and Reform Commission (NDRC).
The average price of residential buildings was 10,872 yuan (US$ 1,495) per square meter in January 2007 but the same year saw a record high of 16,777 yuan (US$ 2,307), a rise of almost 60 percent. The second-hand house market enjoyed more of a boom, with prices increasing from 8,984 yuan (US$ 1,235) in December 2006 to 14,572 yuan (US$2,004) in June 2007, up 62 percent in six months. Prices of some high-class apartments even posted more than a 90 percent rise in this city.
The housing market in Shenzhen experienced a sharp decline in October last year, with property sales of only 82 units during the seven-day National Day holidays. The floor space of commercial housing dropped by 37.5 percent in 2007 as compared to the same period in 2006, with residential building down 40.5 percent and sales of commercial houses decreasing by 13.2 percent, based on an analysis from the Shenzhen Statistics Bureau.
Significantly, this “turning point” arrived earlier than market forecasts had predicted. More and more people were taking a wait-and-see attitude towards buying houses in the latter half of 2007. Sales in October, November and December hit a record low of the year, while the 2006 market was the most prosperous during those very same months.
Prices for new residential buildings hit a record high in September of last year and then it began to fall. They experienced a continuous decrease in the following months of the year.
The price of second-hand houses stopped rising as of last August. Only 1,139,900 square meters were sold in the third quarter of 2007, down more than 60 percent from the second quarter, based on the statistics from the Zhongyuan Property Agent.
The sharp fall took place during the fourth quarter and was due to low sales volume. The volume of second hand residential buildings hit 661,800 square meters, with the price falling by 10 percent as compared with the same period in 2006.
The average price of second hand properties hit 12,729 yuan (US$1,750) in 2007, or a year-on-year increase of 51 percent, still a large number due to the sharp rise in the first six months.
“There were really great ups and downs in the market, that’s very rare,” commented Liang Wenhua.
The land is unbeaten?
Rising property prices are attributed to a limited land supply; this is commonly understood among real estate industry insiders in Shenzhen. “In the long term, land supplies in Shenzhen will be very limited,” said Feng Yongheng, a research fellow with Midland Realty (Holdings) Limited. He believed that land cost is the key factor toward deciding housing prices in Shenzhen. Land prices will rise as the land supply for housing decreases, and then the house prices will continue to go up.
In 2006, the Shenzhen municipal government leased land consisting of 906,000 square meters for commercial and residential buildings. But in 2007 the government has leased only 409,000 square meters, according to the latest statistics.
The government has tightened up land supplies and held land sales via public auction, causing a shortage in land supplies. Property prices rose. According to an official document issued in 2006, the land supply for residential houses construction would decrease year by year after 2007.
Unexpectedly, many managers of house agencies did not agree with such a statement. “Many land auctions have failed recently and one reason for this is due to government controlled housing policies that keep purchasing costs artificially low. At the same time real estate developers still need to turn a profit on the market,” said Liang, holding the view that the overheated property market had led to increasing land prices.
“Demand dictates price,” said Zou Jianmin, a real estate investor. He did not agree that land supply was a key factor in deciding housing prices.
In Shenzhen, six land auctions failed last December and an unsuccessful auction also took place in 2006.
“Developers have their bottom lines; building houses does not always make money,” said Wang Shuquan, General Manger of the Midland Realty (Holdings) Limited. He stressed economic laws, and he maintained that housing prices would decline.
