Be aware of ties that blind

China Daily (Canada) - - FRONT PAGE - By ZHOU MO in Shen­zhen sally@chi­nadai­lyhk.com

It ap­pears that the Shen­zhen prop­erty mar­ket has been hit by the stocks swing, but there may be other fac­tors fu­el­ing the slide.

The main­land stock mar­ket has ex­pe­ri­enced dire times since midJune, with the bench­mark Shang­hai Com­pos­ite In­dex div­ing from a peak of 5,166.35 on June 12 to 3507.19 on July 8, be­fore bounc­ing back to 3823.18 on Thurs­day.

En­coun­ter­ing a sim­i­lar fate has been the Shen­zhen prop­erty mar­ket, which saw trans­ac­tion vol­ume and price both de­cline in July af­ter months of a buy­ing spree, which has seen many draw a cause-and-ef­fect con­clu­sion.

Ac­cord­ing to the sta­tis­tics from the Ur­ban Plan­ning, Land and Re­sources Com­mis­sion of Shen­zhen Mu­nic­i­pal­ity, 1,643 new homes were sold in the city from July 6 to 12, down 6 per­cent from the pre­vi­ous week. Av­er­age price of new homes over the week fell 0.2 per­cent to 33,226 yuan ($5,351) per square me­ter.

Hav­ing seen av­er­age new home prices spi­ral more than 20 per­cent year-on-year in the first half of 2015 and reach­ing a record high of 30,713 yuan per square me­ter in June, the city’s hous­ing mar­ket now seems to be cool­ing down, and not just from the de­mand side.

Few de­vel­op­ers are choos­ing to launch their projects against the back­drop of the stocks cri­sis, prob­a­bly for fear that weak per­for­mance of the stock mar­ket may rip­ple across to the prop­erty mar­ket as well, by de­valu­ing in­vestor cap­i­tal. From July 6 to 12, only one new residential pro­ject was re­leased to the mar­ket in Shen­zhen.

A real es­tate agent sur­named Zhang from Cen­taline Prop­erty ad­mit­ted that the num­ber of cus­tomers has fallen in re­cent days. “Trans­ac­tion vol­ume in the sec­ond half of 2015 may be smaller than that of the pre­vi­ous three months,” Zhang said.

Another agent from Mid­land Realty gave a more spe­cific pro­jec­tion. “Trans­ac­tion vol­ume in July could drop roughly 30 per­cent com­pared with the pre­vi­ous three months.”

The im­me­di­ate cool­ing down of Shen­zhen’s real es­tate mar­ket fol­low­ing the stocks slump seems to in­di­cate a close cor­re­la­tion be­tween the two. And given the ac­tive stock in­vest­ment ac­tiv­i­ties in the city, the ef­fect on the prop­erty sec­tor could be ob­vi­ous and sig­nif­i­cant.

Shen­zhen with about 6.3 mil­lion had the main­land’s third largest num­ber of stock in­vestors as at the end of June, just be­hind Bei­jing and Shang­hai at roughly 13.8 mil­lion and 8.7 mil­lion, re­spec­tively, ac­cord­ing to the Shen­zhen Stock Ex­change.

The num­ber of in­vestors in Shen­zhen in­creased by 339,816 in just a month, as 338,517 in­di­vid­u­als and 1,299 or­ga­ni­za­tions opened stock ac­counts in June alone.

In terms of trad­ing value, Shen­zhen’s show­ing is even more re­mark­able. Last month, trad­ing value in stocks hit 3.4 tril­lion yuan, rank­ing sec­ond among main­land cities af­ter Shang­hai at 4.7 tril­lion yuan.

How­ever, in­dus­try in­sid­ers be­lieve that the stock mar­ket volatil­ity is just one among a range of rea­sons be­hind the chang­ing cli­mate in Shen­zhen’s hous­ing mar­ket.

Zhang Guoku, vice-pres­i­dent for mar­ket­ing at JJSHome, a Shen­zhen-based real es­tate com­pany, said stocks tur­bu­lence has in­deed had some ef­fect on the city’s prop­erty mar­ket, but it is not a decisive fac­tor.

“Shen­zhen’s hous­ing mar­ket was very hot in the first half of this year. Trans­ac­tion vol­ume of sec­ond-hand homes topped 60,000, nearly ex­ceed­ing the to­tal num­ber of last year. Many peo­ple who hope to ben­e­fit from the gov­ern­ment’s new hous­ing pol­icy have al­ready made a deal, so the over­all de­mand is now turn­ing flat,” Zhang noted.

“In ad­di­tion, banks have tight­ened mort­gage loan poli­cies and raised loan in­ter­est rates due to vo­ra­cious de­mand, which makes it harder for prop­erty buy­ers to make a pur­chase.”

“Stock mar­ket is not the di­rect fac­tor de­cid­ing the ten­dency of the prop­erty mar­ket. Rather, the real es­tate mar­ket is di­rectly in­flu­enced by na­tional poli­cies and sup­ply­de­mand re­la­tion­ship,” Zhang told China Daily.

Zhang’s view was echoed by Carlby Xie, head of re­search at Col­liers In­ter­na­tional China.

“We can­not deny that some in­vestors have lost money on the stock mar­ket, which in turn af­fects their prop­erty-buy­ing de­ci­sions,” Xie said.

“But this phe­nom­e­non can­not rep­re­sent the whole pic­ture. More im­por­tantly, I be­lieve the re­cent fall in trans­ac­tion vol­ume is caused by the de­cline in the sup­ply of residential projects and the con­se­quent lack of choice for in­vestors.”

He Qianru, man­ager of Mid­land Realty Na­tional Re­search Cen­ter, shares that view. “It is ha­bit­ual for peo­ple to put the stock and prop­erty mar­kets to­gether for com­par­i­son, as they are the two main in­vest­ment chan­nels. The stocks col­lapse has in­deed eroded in­vestors’ wealth, but it has yet to af­fect the prop­erty mar­ket. Public con­cern over their rel­e­vance is much big­ger than the real ef­fect,” He said.

“Only when the stock plunge causes sys­tem­atic fi­nan­cial risk, which re­sults in the tight­en­ing of mon­e­tary pol­icy, could home prices be con­sid­er­ably af­fected,” she pointed out.

The re­cent stocks shock, while caus­ing wide­spread con­cern, has not been able to al­ter the fun­da­men­tal trends in Shen­zhen’s prop­erty mar­ket, it is be­lieved.

Xie reck­ons that the city’s hous­ing prices will still run on a ris­ing track in the sec­ond half of 2015. “The strong pur­chas­ing power of Shen­zhen will not be un­der­mined by the stock tur­bu­lence,” Xie said.

“Home prices in the city are ex­pected to keep ris­ing, but the growth rate will de­pend on the sup­ply and mar­ket po­si­tion­ing of residential projects.”

Mean­while, Zhang ex­pects hous­ing price growth to re­main flat in the next two months but heat up again by the end of the year, with de­mand grad­u­ally ac­cu­mu­lat­ing.

Carlby Xie, head of re­search Col­liers In­ter­na­tional China

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