In this piece, I share my understanding on China residential property market. My quick survey suggests that the downward adjustment in home prices will intensify. Among reasons cited by friends and contacts are cash flow issues, job losses, high degree of leveraging, decline in shadow lending, unbalanced regional development, multiple mortgages and tightening in bank lending. This is a continuation trend of depressive property market that I first spotted since 2018. Of course, this view needs to be balanced with China’s high savings rate, responsive PBoC liquidity management and accommodative stance and a burgeoning entrepreneurial culture. In another word, this pandemic is an accelerating factor.

As a whole, the gross floor area sold (GFA) will see a slight decline in while average selling price (ASP) could see a slight increase of 1.5% - slowest since 2015. This compared to +1.5% growth in GFA and +8.7% in residential average selling price last year. Property developers will see further ongoing market share consolidation and to offer discounts to boost sales, primarily to shore up cash flow. Shenzhen, China’s Silicon Valley and hottest property market last year, has seen a 80% decline in home sales.

It would be interesting to see the reaction of policy makers given the further moderation in China’s frothy property market. They are walking a tightrope with one hand, carefully not to sink the market entirely – which a crucial growth driver directly impacting more than 40 industries and the need to crack down on speculative buying for nearly four years on the other hand.

Expectation about ever-rising prices has completely altered. Property prices at outskirt like Panyu, Huadu districts, Guangzhou were seeing an annual increase of at least 30% per annum, if not more over last 10 years. Property agents and house-owners would give you an alien look if you asked for a discount then. It was a common practice of Chinese couples of entering into fake marriages to circumvent the high tax on second home purchases then. Today, discounts are the buzz word even in key districts like Tianhe, Yuexiu. It was reported that China Evergrande – China’s third largest developer, offered a 25% discount until the end of February, narrowing to 22% in March, at all its 811 projects.

One telling sign is that few friends of mine are selling their Hong Kong real-estate holdings, especially those assets in Kowloon. Another friend sold his unit at Tai Po for a loss of HK$8.5 million – a property that he bought a decade ago. Offshore RMB deposits have fallen 40% from their 2014 peak. As thing standing now, deep discounts are on selective basis.

One thing to note though is that home ownership is the quintessential every Chinese dream. Spending one’s life savings to buy a home is the requisite entrée into marriage and starting a family.

Chee Seng, Wong
CIO, Athena Advisors
wong-chee-seng@outlook.com