Shenzhen property heads for dizzy heights

February 24, 2014 11:17 am

Shenzhen property heads for dizzy heights

By Demetri Sevastopulo in Hong Kong

Dozens of small fish lie basking in the sun on the roof of a penthouse apartment inShenzhen

that is on the market for about 20 per cent more than when it last sold in 2012.

The roof has been commandeered by the neighbours to dry the fish for their dinner as the owner waits for a buyer to pay Rmb40m ($6.6m) for the property in Portofino, one of the most expensive areas in the southern Chinese city.

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With loud chandeliers and deep red furnishings, thetuhao – a phrase used to mock the nouveau riche in China – apartment was originally sold for Rmb18m in 2007 and again for Rmb33m in the summer of 2012.

The price jump over the past seven years underscores how the dazzling growth in China’s property market has spread from Beijing and Shanghai to major cities throughout the country including Guangzhou and Shenzhen in south China.

The Chinese government on Monday said new home prices in Shenzhen rose 18.2 per cent in January from a year ago, just slower than the three fastest-growing markets which were Beijing, Shanghai and Guangzhou.

KK Lai, China head for Centaline Property, says Shenzhen is a hot market because of the number of entrepreneurs in industries such as technology and ecommerce. Foxconn, Huawei and Tencent are all based in Shenzhen, which was a rural fishing county when Deng Xiaoping launched his economic reforms there in 1979.

“There are a lot of big money people here . . . In Shenzhen, luxury homes sell for Hong Kong prices,” says Mr Lai.

Last year 48,000 new homes were sold in Shenzhen at an average price of Rmb21,626/sq m, a 14.5 per cent increase over the previous year. The secondary market saw even stronger growth, with prices rising more than one-fifth to an average of 27,300/sq m, according to Centaline.

The rise in costs in Shenzhen mirrors a problem that the Communist party is facing across China. The surge in housing costs is pricing many – particularly young – people out of the market and raising concerns about maintaining social stability.

But efforts to cool the market risk causing a hard landing that would endanger the Chinese economy, given the central role of property in fuelling construction spending and serving as banking collateral.

While the central government has introduced policies to spur housing supply and tame speculative buying, many of the measures have not been fully implemented.

Shenzhen boasts one of the highest per capita income levels in China. But even still, Centaline says buyers have to spend as much as 20 times their annual salary of Rmb64,000 to buy a property. Young couples can often only afford homes when both work, and even then must pay Rmb96,000 a year on the mortgage.

Carrie Ouyang, who owns a fashion business, is one of the luckier ones. Back in 2010, she bought a 100m sq apartment near Qianhai, a new economic zone in the city, for Rmb16,000/sq m. Similar flats in the area now sell for 175 per cent that price, making it one of the steepest climbing markets in Shenzhen.

Sitting alongside her friend Yumi, who co-owns a bar called Rapscallions but has not managed to buy an apartment yet, she says: “Most people have problems buying.”

Mr Lai at Centaline says that when economic migrants come to Shenzhen, “their first dream is to get a house . . . [but] the average person cannot get this dream”.

Samuel Kong, managing director of Midland Realty in Shenzhen, says the local market was propelled by the central government’s Rmb4tn stimulus package after the global financial crisis.

Shenzhen has introduced some cooling measures since 2010, including restricting the number of homes non-residents can buy, which Mr Kong says had some impact. But he points out that Shenzhen did not implement other measures unveiled by the central government last year, partly because of the potential impact on public revenues as it was building lots of new highways and a new airport.

However, Centaline and Midland both reckon that Shenzhen might follow Shanghai and Chongqing this year by introducing property taxes, though these levies have so far been very limited in scope.

One thing Mr Kong and Mr Lai agree could have a big impact on the luxury market is a possible push to force government officials to register properties they own.

In 2012, Beijing vowed to move ahead with the policy, which has not yet been implemented. But there is growing speculation that Beijing might finally act as President Xi Jinping pushes various campaigns to clamp down on corruption.

“It will definitely have an impact on property prices, as we can imagine that many officials probably have many properties not from their official income, so they will try to sell before this policy is implemented,” says Mr Kong. “The policy was supposed to be launched in 2013, but many local governments resisted it.”

Mr Lai says it would push a lot of money from the property market to other areas since government officials own most of the luxury apartments in Shenzhen.

“It is illegal to have so many properties at [their] salary, so they have to sell out,” says Mr Lai. “After they sell out, they will buy diamonds, they will buy something you cannot calculate.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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