Shenzhen tries to aid property developers, but loosened curbs drive up prices of homes instead
Crystal Tan and her newly married husband have spent what would have been their honeymoon house-hunting in Shenzhen.
“Buying a home is a priority – we need to get it done this month. Otherwise, we won’t be able to afford anything in this city with the money we have,” Tan, a trader with an international oil company, said. “We were not in a rush because we thought prices were under control, but now it seems that the government controls have been loosened.”
Home seekers such as Tan are rushing to buy property because they expect prices to rise after local authorities in Shenzhen, mainland China’s technology hub, took small steps recently to help its property developers.
For instance, the deposit required from developers bidding for a residential and commercial plot in the city’s Guangming district was cut by 40 per cent to 960 million yuan (US$123.8 million). The plot had been put on the market in October 2019 as well, but was later withdrawn from auction. The authorities also raised the price cap for homes built in the residential area by 10 per cent to 29,800 yuan per square metre.
“When the government sets a higher price for homes, how can we expect the city’s home prices to remain flat?” Tan said.
The Shenzhen government recently lowered the entry fee for participation in land auctions, and hastened the mortgage approval time frame for buyers.
In March, the city’s Housing and Construction Bureau said builders of new homes could get presale approvals without having to show necessary funding thresholds for their projects, and scrapped a required deposit worth 2 per cent of the estimated total investment in a project.
The same month, the city’s government urged banks and related authorities to speed up the process of individual mortgage approvals.
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As a result, more than 8,300 lived-in homes changed hands in the city in April, according to Midland Realty, an increase over the 7,165 sold in October last year.
Analysts view these measures – meant to aid developers amid the coronavirus pandemic – as whipping up a property market frenzy.
“The relaxation of curbs was meant to attract more developers, some of them cash shy, to land sales and reboot the land and housing market,” said Fion He, director of Midland Realty’s research unit. “However, home seekers and investors took this as a signal that the property market in the city will once again be stimulated. [The resulting] uptick in momentum has fuelled a rise in home prices.”
The average price of old homes in Shenzhen rose 10.3 per cent year on year in April, the highest among major cities in mainland China.
“People feel that at this moment, buying a home in cities in the Greater Bay Area, which has kept receiving favouring policies, is safer than doing other business. They are betting on the future of the GBA,” said Yan Yueijin, director of E-house China Research and Development Institute.
The GBA, comprising 11 cities in southern China, including Hong Kong and Macau, has a total population of 70 million residents and a combined economy estimated at US$1.5 trillion. It would be the world’s 13th-largest economy – larger than Spain, and smaller than South Korea – if it were a stand-alone economic entity.
On April 3, Beijing released 400 billion yuan in additional liquidity into the banking system to help small and medium-sized businesses during the pandemic. It is not known how much was used in this fashion, as there are no official figures showing how much money was used for its intended purpose of paying wages and keeping factories going.
However, on April 20, the Shenzhen branch of the People’s Bank of China issued an internal notice urging banks to investigate business loans collateralised with real-estate this year, as the city’s housing market heated up rapidly.
On May 11, the Chinese central bank and regulators unveiled a sweeping plan to spur financial services and investment in the GBA. Yan said some of the cheap loans granted to combat the effects of the coronavirus had been used for speculative purchases in Shenzhen.
“We have recently seen clear instances of speculation in Shenzhen, in particular,” he said, adding that regulators needed to step up supervision to maintain a “healthy housing market in the city”.
During the ongoing National People’s Congress, Beijing reiterated its commitment to reining in speculation in the property market, as the country emerges from the pandemic.
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