Cheap loans designed to help pandemic-hit SMEs are being diverted into property speculation in China’s hottest realty market
https://asiatimes.com-by Frank Chen
A housing block in Shenzhen’s red-hot property market. Photo: Asia Times
Shenzhen’s scorching realty market is the hottest among China’s top-tier cities as demand outstrips supply in the post-pandemic era. Cheap money has stoked rampant speculation and sent home prices soaring in China’s burgeoning tech hub, beyond the reach of most locals there.
Home transactions in Shenzhen have stirred back to life in the past 12 months and recouped the price growth momentum initially lost to the pandemic, registering a 14.1% year-on-year increase in average prices in 2020 to 88,000 yuan (US$13,600) per square meter.
China’s home prices excluding state-subsidized housing grew at their fastest pace in nine months in May, rising .52% from April, according to recently released National Bureau of Statistics (NSB) data. Housing inventory shrank in over 70% of China’s cities last month, with supply halved on average in the nation’s four biggest cities, according to China Real Estate Information Corp.
Shenzhen led the pack of 70 Chinese cities in annualized home price gains, according to data from the NSB and the Ministry of Housing and Urban-Rural Development.
To put that figure into perspective, Shenzhen’s per capita income hovered around 64,000 yuan last year, or 5,300 yuan per month. This is a glaring indicator of how exorbitant home prices are eating into people’s income while Shenzhen’s overall consumption shrank 5.9% to 40,581 yuan per person over the same period.
The Covid-19 outbreak has crimped consumption, particularly in the first half of 2020, yet in the following quarters many Shenzhen residents opted to put their cash into property before prices shot to even higher levels.
A report compiled by online home transaction platform zhuge.com found that a family in the southern megacity has to save for 48 years to afford a median home, the highest price-to-income ratio in mainland China.
Despite its smaller gross domestic product (GDP) and population, Shenzhen’s average home price last year was 1.36 and 1.5 times more expensive than corresponding figures in Beijing and Shanghai.
Shenzhen’s party mouthpiece, the Shenzhen Special Zone Daily, recently opined that the latest property price surge shows the city’s home market is increasingly divorced from most residents’ economic reality, particularly as income growth is still restrained by Covid-induced economic malaise.
Others have noted that the inflow of cheap loans earmarked by banks to aid Covid-ailing small and medium-sized enterprises have to a large extent ended up in Shenzhen’s home market since the second half of last year.
Li Yujia, chief analyst with the Guangdong Housing Policy Research Institute, an affiliate think tank of Guangdong’s Provincial Housing and Development Department that has jurisdiction over Shenzhen’s home sales, told the state-backed Lifeweek magazine that many cheap loans meant to sustain SMEs during the pandemic have been diverted into Shenzhen property speculation.
As a result, the first three months of this year were especially buoyant for the city’s key developers like Vanke and China Resources.
In an email reply to Asia Times, Li sought to debunk “misconceptions” about an undersupply situation and said Shenzhen cadres tried to explain away the unchecked speculation by simply blaming inadequate land supply and strong demand for the runaway price rises.
“More land supply can hardly hold back the rise if speculation and inrush of cheap loans continue … The situation is not in that sense out of control but it cannot be left to its own devices. As seen in the past, when home prices soar in Shenzhen, it will have a knock-on effect on the national market and the pass-through to neighboring cities and other first-tier urban centers to ignite a nationwide surge,” said Li.
Last month, Xinhua quoted the People’s Bank of China (PBOC) as saying that the annualized interest rate of special loans for SMEs and self-employed individuals to help them get over the recession could be as low as 4%, with a streamlined application process aimed at helping cash-strapped businesses.
A lump sum loan of up to 5 million yuan could be approved within one day when it is secured against property or other assets held by the borrower, the report said.
By comparison, the average interest rate on residential mortgages issued by China Merchants Bank, Shenzhen’s largest bank, was 5.6% this month and the special rate for first-time homebuyers is about 5%, according to realty consultancy Savills.
The interest difference is giving speculators incentive to take out cheap SME loans to buy homes amid the upbeat outlook of Shenzhen and sustained price increases, with some realty agents talking up a 15-18% surge this year.
Shenzhen officials are reportedly increasingly in Beijing’s bad books as efforts to tame the speculation so far have been perceived as lacking. In April, Shenzhen’s Mayor Chen Rugui was sacked by Beijing when his bid to rein in price gains missed the mark.
When Chen’s successor was installed in May, Shenzhen’s banks were told to step up scrutiny of loan applications and issue smaller mortgages based on the government’s valuation of homes that are usually a third lower than prevailing market prices.
Yet Shenzhen’s sweeping move since February to assign government-mandated prices on all residential properties at a 20-30% discount of market levels to combat price-gouging is reportedly saddling genuine homebuyers with higher down payments and thus making homes even more unaffordable.
This is because buyers can only take out smaller mortgages but sellers refuse to accept the state-mandated price markdowns.
The city is also applying more red tape in vetting who is and isn’t qualified to buy homes, with non-locals now having to work and pay tax in the city for more than five years to qualify.
It remains to be seen how Shenzhen’s home price surge will play out in the long run as news regulatory measures kick in, but in May average home prices continued to defy curbs and trended up by 0.6% month-on-month.
Shenzhen has also been urged to resuscitate until now frozen public and subsidized housing projects to help newlyweds, new city arrivals and the so-called “sandwich” working class who are priced out of the market. The aim is to offer such homes at flat-rate costs.
Other speculation-squeezing measures are in the national pipeline. In May, the Ministry of Finance convened a meeting to hammer out specifics to trial a long-delayed national property tax.
Shenzhen is tipped to be one of a handful of cities chosen for the tax’s trial implementation, which will reportedly be aimed in particular at those who own more than one home.