Speculators zoom in on Shenzhen to flip new homes for quick profit, raising warning of ‘grey rhino’ risks and regulators’ ire
- Five of the seven projects that launched last week sold out, with as many as 33,000 new homes being sold this year as at the end of October
- At CR Land’s project in Nanshan district, the average price for new homes was capped at a 28 per cent discount to the market, which created an immediate windfall on paper of 5 million yuan for a 100-square metre flat
Shenzhen, the crucible of China’s economic reforms and the nation’s technology hub, is seeing a buying frenzy in residential property, as a government-imposed price cap created arbitrage opportunities for speculators to make quick profits.
At CR Land’s CR City project in Nanshan district, the average price capped at 130,000 yuan (US$19,760) per square metre was 28 per cent cheaper than the neighbourhood’s prevailing market price . That attracted more than 10,000 bidders, helping the state-owned developer sell all 1,000 units within half a day on November 25 . Lucky buyers stand to make an immediate windfall on paper of 5 million yuan for a 100-square metre (1,076 square feet) unit.
“Everybody is catching a ride on the gravy train,” said Li Yujia, senior economist with the Real Estate Assessment and Development Research Centre in Shenzhen. “When people keep flocking into the property market, how do you expect Shenzhen’s housing market to cool down?”
Home sales went through the roof, with five of the seven projects that launched last week selling out. As many as 33,000 new homes were sold this year as of the end of October, according to Midland Realty’s research director Fion He, who expects the tally to rise by anther 27 per cent by the end of December to a five-year record of 42,000 homes.
“People are just all bullish about Shenzhen’s future, and are ruling out any possibility of any drop in home prices because of [optimism] that government policies favour the city’s growth,” said He. “Getting a new home in Shenzhen means getting a cash cow.”
Speculators are finding new tricks to skirt government controls to curb the enthusiasm. A booming business has been created where Shenzhen residents – limited to one per resident, or two per household – sell their unused home purchase quotas as surrogates for as much as 300,000 yuan to property buyers.
“Using someone else’s quota to buy a home is very risky, as the property will be registered in someone else’s name,” said Dentons’ real estate lawyer Liu Ziru in Shenzhen. “We will see [legal] disputes when these surrogate real estate are put on the market in the next few years.”
Shenzhen authorities are poised to rein in the buying binge created by the price arbitrage and the profligacy of surrogates, with the local housing and construction department saying on November 30 that it is “actively discussing comprehensive policies regarding the recent new home frenzy … to make the market more rational and develop in a stable way”, without giving details.
To be sure, it is not the government’s first attempt at damping a property bubble. Non-residents of the city were slapped with increasing restrictions in 2016 such as tax and social security requirements to entitle them to buy property.
In 2018, companies were banned from buying homes, while residential property had to be held for three years before reselling. Most recently in July, the government posted additional residency and tax requirements for buying homes.
“Shrugging aside the risks, the only way to solve the housing problem is to increase the supply of homes,” said Liu. “In a city like Shenzhen where people continue to flow in, and more homes are needed every year, price cap or tightening of purchase entitlements may not be the correct way to curb the prices, or go far enough.”
