Shenzhen’s ‘voracious housing market can withstand virus hit’

Xie Yuqing, an agent at real estate agency Centaline Property in Shenzhen, has spent the longest Lunar New Year holiday this year, although reluctantly, since she joined the industry eight years ago.

“Traditionally, the property market gets back into top gear after the break when people return to work. But this year, it’s a totally different story. Our offices are closed and customers are confined to their homes. I can just do nothing,” she sighed.

The rampaging novel coronavirus pneumonia epidemic that has disrupted businesses and kept millions of people at home has brought the country’s property sector, a cornerstone of the national economy, almost to a standstill, with marketing centers and agency offices shut down.

In Shenzhen, the debate is about whether the public health crisis will put a brake on the runaway property market that has turned Shenzhen into one of the most unaffordable cities on the Chinese mainland, with prices of new apartments having hit 54,112 yuan ($7,705) per square meter in January, according to Centaline.

The outbreak’s impact can be seen from the city’s property transaction statistics. According to data from the information platform of Shenzhen’s housing department, there were only 201 previously owned home transactions in the first week after the Spring Festival holiday — down around 80 percent from the same period a year ago.

New-home sales also showed a sluggish picture. Only 151 new homes were sold during the week from Feb 12 - 18, plunging 65 percent from the same period last year.

Developers are struggling to hammer out solutions to keep themselves afloat — slashing prices, launching live-streaming sales online, and introducing house-viewing with virtual reality technology.

China Evergrande — the country’s third-largest developer by sales — has said it will offer a 25 percent discount for all its property projects on sale from Feb 18 until the end of this month, plus a 22 percent cut in March.

Experts and industry insiders are divided over how long the “chilling winter” will last.

Ray Wu, deputy managing director of Savills Shenzhen, believes the coronavirus outbreak will not deal a big blow to Shenzhen’s residential property market, given its sound fundamentals.

“Shenzhen’s young population with a voracious housing demand, a shortage of land supply, and a host of preferential policies related to the Guangdong-Hong Kong-Macao Greater Bay Area and the national pilot demonstration area show it has sound fundamentals,” he said.

“This will enable the city’s residential property market to rebound stronger than other mainland cities once the epidemic is gone. If it could be over by the end of March, I believe the sales volume will go up in the second half of the year.”

Shenzhen’s housing authorities on Feb 6 ordered all property developers, brokerages and valuation organizations not to resume work before Feb 9. Those planning to resume operations after Feb 10 should seek approval in advance.

Li Yujia, chief researcher at the Guangdong provincial housing policy research center, said Shenzhen’s housing market has “frozen”. “Several million people had left the city before the Chinese New Year and many have yet to come back. The impact of the population flow on the market is huge.”

If the epidemic recovery work could be done effectively, Shenzhen’s property market is expected to rebound in the second quarter at the earliest, he said.

Jiang Shaojie, managing director for Shenzhen, Dongguan and Huizhou business at Midland Realty, is more conservative. He does not see the market recovering until the second half of the year, citing as an example the SARS outbreak in 2003, when the impact lasted more than seven months.

He believes the authorities may ease housing policies in the second quarter in light of the situation.

As for prices, Wu said secondhand homes in the city could see a slight drop. “The reason is that prices of Shenzhen’s previously owned homes had gone up by more than 10 percent on average in 2019, in some areas by 50 percent. It’s easy to see a price adjustment after this special period.”

“For new homes, I expect prices to remain stable compared with the previous year,” he said, adding that commercial property could suffer much more from the outbreak.

“Shenzhen’s office market has been under great pressure since 2018, with the vacancy rate going up, dragged down by the Sino-US trade spat and a large number of peer-to-peer financial institutions going bust. The large volume of office supply expected to come on stream this year and the epidemic are set to exacerbate the situation,” Wu warned.

“Technology will also play a role in the process. The upcoming 5G technology will provide firm support for online businesses, enabling everyday work and meetings to be done smoothly. That may push more companies into conducting their operations online, thereby reducing demand for offices. The coronavirus outbreak is a test for the new model, which is likely to become a trend.”