MAGAZINE 47 MARKET WATCH

 

 

As property prices plummet across the border, demand for flats remains high. It might be time to go shopping in Shenzhen, says Jane Drew

‘‘Prices have increased 350 percent in three years. And the government introduced a series of policies late last year to cool the market down’’ says Buggle Lau chief analyst at Midland Realty

Look into buying a home in Shenzhen at the moment and you will find not only that prices are down but also that developers are offering numerous incentives to potential buyers. This is an interesting development in the boomtown, long known as the hottest property market on the mainland, where house prices rose 50 percent on average last year.

Since late last year, the number of recorded property transactions has been falling, primarily because buyers have been unwilling or simply unable to accept escalating prices. Central government policies aimed at curbing the rising prices of mainland real estate have also had a big impact on the Shenzhen market.

Discounts of 8 percent on advertised sales prices are not uncommon, particularly if buyers are willing to pay a 40 percent deposit. Moreover wily buyers can expect free furniture, a free balcony, or even a free car thrown in as part of the deal.

Developers and homeowners, who banked on the fact that the market would continue to boom, are now being forced to rethink their sky-high asking prices, and in some cases sell their properties for less than they paid for them.

At Peninsula Phase One, one of the most prestigious residences in Shenzhen City, the average price for a 200-square-metre apartment with sea views fell recently by 30 percent to RMB35,000 (HK$38,199) per square metre.

The luxury development, located on Shekou beach, near the Shekou Ferry Port and the cross-sea bridge to Hong Kong, is an ideal base for Hong Kong businessmen. But despite this, interest is at an all-time low. A 146-square-metre unit at the Peninsula that cost RMB3.94 million is now on the market for RMB3.5 million.

A former fishing village, nominated as a Special Economic Zone (SEZ) in May 1980 due to its proximity to Hong Kong, Shenzhen is one of the fastest growing cities in the world. A major manufacturing centre and the second busiest port in China, it is also home to some of China’s most successful high-tech companies.

Shenzhen Municipality comprises six districts: Luohu, Futian, Nanshan, Yantian, Bao’an and Longgang. The SEZ comprises Luohu (finance and trading), Futian (government and civil services), Nanshan (high-tech) and Yantian (port and logistics).

The city has been on the up for 30 years, and by late 2007, the average price for flats had reached a whopping RMB13,952 per square foot. The central government’s attempts to cool the nation-wide market boom is now being felt strongly however.

“Prices have increased 350 percent in three years,” says Buggle Lau chief analyst at Midland Realty. “And the government introduced a series of policies late last year to cool the market down.”

Not only were interest rates on mortgages raised six times in 2007 and requirements tightened for those eligible for bank loans, buyers are now required to make larger initial down payments.

To curb speculation, restrictions have been placed on Hong Kong and Macau residents, who can now own only one unit in the city. Ways have been found round this — with properties being bought under a company or relative’s name — but still a significant drop in the number of transactions has been recorded.

Added to this, with projects worth RMB50 million and over, developers are being asked to furnish the city government with progress reports. As a result, developers will be prevented from delaying the release of projects, something they were in the habit of doing to manipulate prices.

As a result of these measures, prices had dropped over 10 percent on average by the end of 2007. But Shenzhen’s long-term economic stability seems assured, so prices are expected to bounce back later this year.

Even discounting the growing number of Hong Kong commuters, many of whom live in the city at least half of the week; Shenzhen’s population continues to expand rapidly. And the mix of industries requiring workers gives the city a unique demographic. The population is split between two extremes: intellectuals with a high level of education (and income), and poorly educated migrant workers with a low income.

Help is at hand for the latter, as the central government is intent on building new, affordable housing. Last November, Premier Wen Jiabao announced that the supply of low-cost Shenzhen homes would be increased by 2010. The Ministry of Land and Resources will designate 70 percent of future land supply to provide low-cost rental housing, and affordable homes for middle-income buyers.

Clearly the best way to cool the market is by increasing the supply of new flats, and the planned public housing will do much to supply local demand, as it has in Hong Kong.

“It’s difficult to compare the markets directly,” says Lau. “But between 1997 and 2003 property prices in Hong Kong dropped more than 70 percent, in part because of an aggressive government-program of subsidised housing. The intention was to up the annual supply of units (private and public) to 85,000.”

Shenzhen was originally an under-populated, mountainous area but the land has gradually been levelled to allow for mass construction. Downtown, only Lian Hua Hill, Bi Jia Hill and Mount Wutong now offer elevated vantage points. Even the hills in surrounding areas, such as Mission Hills, have been toppled to make way for more development.

In the years to come, an ever-increasing number of workers, at either end of the monetary scale, are going to need housing. And in an effort to slate demand, the restricted frontier zone at the border is going to be gradually opened up from 2010 to 2012. Concerns over smuggling and illegal immigration from the mainland are now minimal, and as a result a total area of 2,400 hectares has been released. In the restricted zone, land costs are presently only two-thirds of Shenzhen’s and they are expected to rise exponentially once the area is opened up. Former ghost towns, like Tam Shiu Hang, look destined to blossom into affluent middle-class suburbs, and developers have already begun talking to the indigenous villagers about possible land sales.

“This is the beginning stage, and no details have been released about town planning as yet,” says Lau. “Transportation needs to be very convenient. It’s likely that the area will be popular with buyers whose factories are based in China and who are looking for an easy commute to Hong Kong. These low-density high-end properties will be a good choice for them.”