Buyers' or Sellers' Market? In China, Slump Stokes Activity; Caution in Shenzhen

SHENZHEN, China -- In China's home market, there is good news and bad. The bad news is that prices are tumbling. The good news is that the decline seems to have sparked a surge of sales activity.
Last week, figures from China's official National Development and Reform Commission said that property-price growth in 70 of the country's largest cities in November dropped 0.5% compared with October, the fourth consecutive month-over-month decline in a country that hasn't seen such declines in the four years since the government began publishing the numbers. On a year-over-year basis, price growth was at 0.2%, a record low, with Shenzhen registering a 14.8% year-over-year drop.
But falling prices seem to be where the similarity between the Chinese market and ailing Western markets ends. In the U.S. and Europe, falling prices have done little to boost demand, as buyers sit on the sidelines worrying about the economy or expecting prices to drop further. In China, falling prices have triggered a surge in sales activity, a sign of enormous pent-up demand in that market.
According to Shenzhen's municipal government, 6,435 new flats sold in the city in November, or 215 units a day. That is up sharply from the last week of October, when an average of 58 units were being sold a day.

Property, a Key Market
China's property market has implications for the broader economy, which relies on real-estate investment for 9.2% of annual growth in gross domestic product, according to Merrill Lynch.
A decline in construction activity has been a major factor in China's recent economic slowdown and has been a focus of government stimulus efforts.
Prices are likely to fall further next year because there is still a glut of apartments that were built in recent years as speculators helped drive up prices beyond the means of many ordinary home buyers. Thousands of units also are expected to be added to the market next year.

'More Corrections'
Before China's home prices can recover, they first need to fall, says Nicole Wong, head of China property research for broker CLSA Asia-Pacific Markets. "It's going to take more corrections and policy moves for prices to see any rebound," Ms. Wong says.
Turning around China's slumping property market could depend on luring Jamie Chen and tens of millions of other potential home buyers to the table. The problem, she says: In many of China's biggest cities, falling home prices are still too high.
"If I had enough money to make a down payment, I wouldn't wait. I think it is a good time to buy now with all the policies to help buyers," said Ms. Chen, a 28-year-old project-management consultant living with her parents in a suburb of Shenzhen.
The fall in prices is a sharp turnaround from just a few months ago, when China was still posting nationwide year-on-year price growth in the double-digit percentages. Even so, Citigroup says the national average ratio of property price to household annual disposable income in China is 8.3 times, compared with an average of 6.5 times to 7.5 times for developing countries. In a major city like Shenzhen, the ratio last year was 12.4 times, up from 8.6 times just a year earlier.
Dropping prices haven't caused a foreclosure wave as in the U.S. because Chinese consumers typically put down at least 30% on a mortgage, and many still pay for their houses in cash. China's economy also is still expanding, giving a lift to national income levels. Mortgages remain attainable, and authorities slashed mortgage rates and loosened home-buying rules and taxes on Oct. 22 to reduce costs.
The Shenzhen Factor
Shenzhen, a manufacturing center of nine million people, is one of China's biggest and most mature property markets and is considered a bellwether for the nation's housing scene. The first major market hit by China's property slump, Shenzhen also was the first to see property developers slash prices.
Brokers say prices in parts of the city have fallen some 30% in the past year, following a 50% drop in number of units sold from a year ago. Still, prices in Shenzhen are 63% higher than in 2004, according to real-estate brokerage firm DTZ.
On a recent weekend at the MixC, a mall in Shenzhen, shoppers swarmed two large display booths promoting high-end apartments. A lot of brochures were picked up, but few commitments were made. "I'm not planning to buy now, but maybe next year," said one shopper, who picked up a brochure. "Things are definitely going to continue to go down."

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Author: JONATHAN CHENG
Original Source: Wall Street Journal
Date Published: DECEMBER 17, 2008
Web Source: http://wsjofharryliuhao.blogspot.com/2008/12/buyers-or-sellers-market.html
Date Accessed Online: 2008-12-18