China Talk: Shenzhen Housing Market Snapshot

  • Demand for property remains high in core areas and mid-to-high-end segments within tier 1 cities
  • Raising expectations on supportive measures that may stabilize the housing market
  • State-owned enterprises believed to stand out amidst coming market consolidation

Economic activity in Greater Bay Area has been rather low. The hot temperature is not offering any help, as residents prefer to stay in air-conditioned malls or come out only after 4pm to avoid the unbearable heat. Both new and second-hand house markets in Shenzhen had recorded limited transaction volume in June and July. The new housing market excelled over the second-hand market, yet overall still resulted in a -8% MoM In June, and transaction volume stayed at a 2-year low. All districts had an average transaction price 10-15% below the government guide price except for Futian and Nanshan districts.

However, new changes can be seen within the current bleak market:

  1. A residential development in the Futian Xiangmihu area, with a single en-suite starting from CNY12 million, saw all of its properties sold out on its first opening day. This is due to its good geographical location on top of the government price cap which makes the price 20% lower than surrounding second-hand properties.
  2. Another newly built project in Qianhai Guiwan area sold 95% of its properties on the first opening day, bagging over CNY10 billion in sales in one day. The development offers single en-suite units starting from CNY9 million.
  3. A second-hand property in Futian Xiangmihu (CNY13 million) attracted many suitors given its 8% below market price offer, closing the deal within one month. This is due to its good value being in the Shenzhen luxury residential area with a good network of schools.

Our view

There is still high user demand for properties within tier 1 cities, particularly in core areas and mid-to-high-end segments. The low transaction volume that we have seen lately is not due to lower purchasing power, but to various reasons such as the government's purchase and loan restrictions which lead to a lower liquidity environment in general.

In July, the Politburo Statement has left out the wording of “houses are for living in, not for speculation,” raising the expectation that more supportive measures will be rolled out soon. With support from the government, the Chinese property market should stabilize and recover gradually. However, one should not expect a V-shaped recovery as we should also be aware of the facts that:

  1. Recent government supportive measures remain scattered with different province/regions having different policies, too early to claim for total sector turnaround.
  2. It would take time for home buyers to build confidence with privately-owned enterprises (POEs) as POEs balance sheets in general remain weak and likely need a lengthy period to re-start their positive operating cash flow cycle.
  3. Given that state-owned enterprises (SOEs) continue to possess better capital resources, they would be the ones capable of acquiring land banks and therefore dominate the contract sales in the coming 1-2 years.
We continue to monitor closely the policy and property situation in China, and maintain our view that SOEs will eventually stand out amidst this market consolidation.