Shenzhen's housing market downcycle 'has begun' after cooling measures as banks tighten mortgage lending

By Pearl Liu

/ SCMP |

May 12, 2021 1:13 PM SGT

SINGAPORE (EDGEPROP) - Shenzhen is showing some early signs of success in containing runaway house prices in the technology hub after 13 rounds of market-cooling measures since last July, repairing its reputation as a model city envisioned by President Xi Jinping.

The city recorded 270 units in home sales during the recent Labour Day from May 1 to 5, or about 20% lower than the volume during the same holiday season last year, according to data compiled by Midland Realty. Some 724 units were transacted during the same period in 2019.

Tightening credit for home mortgages has also played a part in reining in the buying frenzy that gripped the Silicon Valley of China over the past two years. China Construction Bank, for example, has lifted its mortgage rates by 15 to 35 basis points, the 21st Century Business Herald reported earlier this month. Analysts expect more measures to tame the housing market.

"Higher mortgage rates, particularly for second home purchases, is a signal the government will launch a long-term price mechanism to crack down on speculation," said Li Yujia, senior economist with the Real Estate Assessment and Development Research Centre, a research arm of the city's government. "Clearly, a downward cycle for the housing market in the city has begun."

Shenzhen's economic size has multiplied over the past 40 years, hailed by Xi as a miracle since overtaking Hong Kong and Singapore. Many of its companies have become world beaters in their fields, including WeChat operator Tencent Holdings, telecommunications giant Huawei Technologies and drone maker DJI.

Beijing unveiled a blueprint to turn Shenzhen into a "pilot demonstration area for socialism with Chinese characteristics" which would see it becoming a world leader in technology and innovation, public services and the environment by 2025.

Since July 2017, home prices there had risen by 53% through March this year, double the average increase in the Greater Bay Area, according to indices compiled by Centaline Property. During the period, prices rose by 18 to 23% in Guangzhou, Zhuhai and Zhongshan, some of the cities favoured by Hongkongers. Prices of second-hand homes have risen by 20% since April 2019, faster than in any major mainland city, according to Fangtianxia, an online property portal.

Read more: Shenzhen announces ban, penalty on property cheats as homebuyers try new tricks to profit from red-hot market

Shenzhen ranked among the top five most expensive cities to live in globally for a second consecutive year, with an average price of US$783,855 (HK$6.1 million) or US$783 per square foot, according to a recent report published by CBRE.

Yet, surging home prices, sometimes volatile and excessive, are tormenting local authorities seeking to heed Xi's oft-cited mantra that "housing is for living, not for speculation". This time, they are getting a helping hand from banks to calm housing market anxieties.

China Construction Bank, one of the four major state-controlled lenders, has raised its mortgage rate to 5.1% from 4.95% for first-time homebuyers, the Herald reported on May 6. Loans for second home purchases were raised to 5.6% from 5.25%.

That offers some comfort to Maru and her husband Timmy Chen. The couple who are in their early 30s, already owned a 90 square metres (969 sq ft) home in Longhua, which is located about 40 minutes' drive from downtown Shenzhen.

The couple are concerned that cooling measures will hinder the appreciation of their current home. At the same time, they are also worried about saving up enough to upgrade to a bigger unit closer to the city centre.

"Everyone is talking about houses when they gather, where the best location is, how much prices have surged, and whether they are still qualified to buy in Shenzhen," she said. "This is the main talking point over lunches, and people sitting next to you may also be talking about it. The runaway prices have made people so anxious in this city."

Prices may drop further into the third quarter as cooling measures shrink demand, according to Fion He, director of research at Midland Realty's unit in Shenzhen. More banks are expected to follow CCB and raise lending rates, she added.

"There is only one purpose [of these measures], that is to break the notion that Shenzhen's house prices will never fall," He added. "This will squeeze speculators who hope to cash in by flipping properties."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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