Beijing’s efforts to help more people on to the property ladder has made homes in Shenzhen, China’s least affordable city for houses, in even shorter supply – and more expensive.
The southern tech hub, home to Huawei, Tencent and ZTE with its 2020 GDP ranked among Asia’s top five, had been due to hold this year’s largest sale of government land by tender last week.
Twenty-two residential sites, mostly in prime downtown locations across the land-starved city, would have been up for grabs. A gross floor area of almost 2.8 million square meters could have been built on these plots.
As the land scramble among big developers began to heat up, Shenzhen cadres hoped the plots could snag decent premiums for the city’s coffers. The city’s land sale proceeds in the first half almost halved to 17.3 billion yuan (US$2.66 billion) compared with a year ago and are a fraction of its 2020 total of 105.4 billion yuan.
The sale was put on ice by Beijing’s 11th-hour intervention on August 9, when the Ministry of Housing and Urban-Rural Development reportedly stepped in and ordered a complete review of all land sale programs and bidding conditions in the city.
Shenzhen is a lightning rod for Beijing’s realty speculation crackdowns.
The latest average home there fetched 59,155 yuan per square meter as of June, up 7.1% from a year ago, according to the data from the semi-official China Realty Information Center.
To put that figure into perspective, Shenzhen’s per capita income in 2020 was 64,900 yuan, meaning a couple would have to forgo all other consumption and save for up to 27 years to buy a 60-square-meter home, the average size in the megacity.
Li Yujia, a senior researcher with the Guangdong Housing Policy Research Institute, an affiliate of the province’s housing and construction department, told China Real Estate Business that Beijing may want Shenzhen to attach more strings to the plots to be sold.
It may also want a cap on the premiums to further rein in the runaway price surge, since if land auction prices could be brought down, so would prices of new homes.
A small site sold back in May saw its net land price hit 70,000 yuan per square meter after local developer Kaisa outbid rivals and bagged the 21,000-square-meter downtown plot.
The 45% premium over the Shenzhen government’s reserved base price sits particularly uncomfortably amid Beijing’s imperative to arrest price surges. Shenzhen papers speculated back then the net price of luxury homes to be built there could be well over 100,000 yuan per square meter.
China’s top leadership recommitted to more reforms over land sales and a price stabilization and intervention mechanism during a work conference on July 22 convened by Deputy Premier Han Zheng.
Han reportedly told Shenzhen and other top-tier cities plagued by realty speculation to replicate the city of Beijing’s tough measures, including caps on home and land auction prices as well as stricter scrutiny of sources of land purchase funds and developers’ gearing ratios.
Analysts say these Shenzhen plots will be put out to tender later this year but in a bid to better comply with Beijing’s latest requirements, special conditions may be inserted to require developers to build more rental and public housing as well as other public facilities on the plots, which will significantly crimp their profit margins.
Stricter financial health assessment of developers may also preclude private firms from bidding.
As Shenzhen cadres rejig land sale policies, prospective buyers now bemoan even fewer home supplies in future after the suspension of a major land sale, on a sellers’ market where second-hand homes are already disappearing.
This is because Shenzhen’s sweeping measures against price gouging introduced in the first quarter to assign government-decreed prices on all existing homes, usually at a 30-50% discount off market levels, instantly tanked transactions but not prices, as most sellers chose to cancel deals and withhold their assets rather than sell them to safeguard the value of their properties.
The well meaning policy failed to deliver its intended effect as Shenzhen’s second-hand home prices withstood the blow and even trended up slightly in the following quarters.
“First, Shenzhen’s government capped prices of second-hand homes and soon there are almost no such homes available for buyers, then the government halted selling plots so future home production and supply will also be affected,” said a realty broker who told Asia Times he had not sold a home since April.
“So what we get are even fewer homes available in China’s most expensive city and that’s precisely why prices will only shoot through the roof even further, instead of going down to a reasonable level, as hoped by our cadres who designed all these brilliant policies.”
Shenzhen’s papers also reported a spike in average rent in the city since the second quarter when homebuyers priced out of the market were left with no choice but to rent. Thus, the city’s exorbitant home prices have weighed most heavily on those on the bottom rung of the property ladder.
The government is also feeling the impact as its policies boomerang. Shenzhen’s financial bureau told China Business News that taxes from home transactions had nosedived by 30% since the first quarter.
A wave of lay-offs and closures is also hitting Shenzhen’s realty agencies as their business dries up. China Real Estate Business reported that 30,505 second-hand homes changed hands in Shenzhen in the first half, down 48% year on year, but the city had 45,458 registered reality agents, meaning many could have sold no homes in the first six months.