China Talk: China’s property market is diverging

  • China's property market diverges
  • Some cities began to fine-tune their real estate policies, providing support for the market
  • State-owned enterprise developers are poised to benefit from the ongoing consolidation trend

After showing strong momentum in 1Q23, China country-wide property transaction in 30 cities appears losing steam since April. However, on the ground, performance is diverging among regions, with much better new home sales in tier-1 and tier-2 cities, while lower tiered cities remain in doldrums.

Shenzhen has been among one of those cities in China with the strictest restrictions on purchases and mortgages. Similar to other local cities such as Chongqing and Hangzhou, Shenzhen is also starting to fine-tune its property policies. Since 20 April, Shenzhen government has cancelled the reference price policy for second-hand housing, which indirectly and effectively helped to marginally increase the mortgage leverage ratio for buyers to support their home purchase. This is the first time since 2020 that the housing purchase policy has been loosened in Shenzhen.

We noticed that in core districts in Shenzhen, such as Qianhai, Futian, and Nanshan, demand has been picking up and good quality projects can quickly attract genuine home purchasers. Our meeting with several real estate developers and visits to their sales offices have surprised us positively. For example, in a showroom of a real estate project in Qianhai, we noticed 4 to 5 different groups of customers were busy calculating and negotiating the contract price with sales agents, after only viewing the flat model briefly in a quiet weekday afternoon. The sell-through rate of this real estate is already nearly 90% three months after its opening.

We noted a similar trend also visiting another showroom for a real estate project in Futian Central District. Even though the project has not yet opened for public sales, more than 70% of the project has already been pre-sold to "intended" customers (i.e. those are willing to pay a deposit of CNY500,000).

Our view

In top-tiered cities, limited land supply and strict government policies have always been the hassle for home buyers to buy their homes. Now with the local governments starting to normalize or even remove some of these very strict policies, we believe property developers with strong presence in tier-1 and tier-2 cities should continue to do well, despite the overall China property market may not return to the historical high-growth phrase anytime soon. In particular, SOE developers, with abundant landmark, strong sales channel, solid reputation, and multiple funding channels are very likely to gain market share, at the expense of weak private developers given that home buyers would have more confidence in these SOEs' continuity capability. A consolidation trend is happening in China property market, and SOE developers will come out eventually as the final winners.