Property

Is there a bubble in Shenzhen housing market?



Shenzhen, as the first special economic zone of China, is an important high-tech development and manufacturing hub in southern China. Its economy is mainly supported by financial, high-tech, logistics and real estate industries. Shenzhen Stock Exchange is one of the two major stock exchanges in China, which is an important financing platform for domestic enterprises. Headquarters of many large enterprises are located at Shenzhen, for example the leading tech company Tencent, telecommunications equipment manufacturer Huawei, China Merchants Bank etc.

As a centre of the high-tech sectors, Shenzhen attracts many talents from around the country, or even from around the globe. This makes Shenzhen become an immigration city, where over 90% of the people are from other places. As such, home prices in Shenzhen have been on the upswing, surged by 73% from the beginning of 2015 to September 2016, reached around RMB 60,000 per sqm, two to three times higher than the prices of its neighbour Guangzhou, which is also a first-tier city. The property prices in the downtown area are even higher, around RMB 100,000 per sqm in Futian District and Nanshan District, and about RMB 70,000 per sqm in Lo Wu.

The high prices in Shenzhen and other cities prompted the government to launch a new round of control measures during the National Day Golden Week holiday in more than 20 cities. Shenzhen's new policies include the purchase of the second house requires a minimum down payment of 70%, up from 40%; single person is limited to buy one house only; also, non-Shenzhen residents can buy houses only if he or she has been paying individual income tax or social insurance in Shenzhen for at least 5 consecutive years.

After the introduction of the new control policies, Shenzhen property market was slightly cooled. Property price slided to RMB55,000 per sqm, while transaction volume reduced significantly. Yet the demand for property has not disappeared as a result of the regulation since Shenzhen professionals’ demand on housing is still very strong. Most of them are highly educated and have high incomes, so they are able to afford the relatively high housing costs.

Many houses in Shenzhen now cost over RMB 10 million. Some people think that property price is too high as it is far beyond the growth rate of real economy and the average income level of the public, so there is a bubble in the property market. If we look into the market from the supply and demand perspective as it affects property prices, supply of housing in urban areas is limited, and the high-paying professionals have a substantial demand on housing, as such high property price is inevitable. Shenzhen property market has a solid demand supporting it; thus it is expected to remain stable. 

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