Property buying frenzy cools in Shenzhen as investors stay away from new residential projects in China’s Silicon Valley

The chill sweeping through China’s housing market is being felt in Shenzhen, China’s Silicon Valley. There are few takers for houses in the once red-hot market as buyers are watching from the sidelines since the start of this year.

The 353-unit Shangjing, the year’s first launch on January 2, has been the biggest flop. The developer Anhui Anlian Express has sold only one home in the project in the city’s southwestern Guangming district in the past two weeks, according to agents tracking new home sales.

In comparison, Royal Mansion, launched in June 2020 and only eight minutes by car from Shangjing, attracted bids from more than 9,000 potential buyers for 394 units, or some 23 people vying for one home. The project was sold out in five hours.

Shangjing is not the only project to fare poorly. Wan Fu Hua Yuan, developed by Shenzhen Yuanfa in Longhua district, has only found 20 buyers for its 1,694 units since it was launched on December 30, agents said.

Cedar in Longhua district, launched on January 6, has sold 220 flats, or 35 per cent of the 637 units. Despite the dismal sales the developer Excellence Group said the result was “outstanding” on its official WeChat account.

“The era where we saw long queues at sales centres in Shenzhen and sell-outs on the first day has gone,” said Fion He, director of research at Midland Realty’s subsidiary in Shenzhen. “Buyers are now waiting on the sidelines as so many uncertainties lie ahead.”

Cracks in China’s US$1.7 trillion housing market, about seven times the size of the US market in 2019, were seen last year when some major home sellers in China, including China Evergrande Group, Kaisa Group Holdings and Modern Land (China) failed to pay their creditors and left some of their unfinished properties high and dry.

These cracks are only expected to widen.

S&P Global Ratings said in a research note on Monday that mortgage easing in China was stabilising the housing market to a certain extent, but sales were unlikely to rebound to the pre-tightening level seen in the second half of 2020.

“We forecast a 10 per cent drop in residential sales in 2022, with more of the pain felt in the first half due to high base impact and weak buyer sentiment,” it added.

Shenzhen, home to companies that have become world beaters in their fields, including WeChat operator Tencent Holdings, telecommunications giant Huawei Technologies and drone maker DJI, is likely to see the property buying craze ease.

“I am now a little bit glad that I did not buy a flat last year, otherwise I might have bought at the highest price level,” said Crystal Tan, who has been looking for a home in Shenzhen for two years.

Tan failed four times in the past two years to get in front of the queue in lucky draws for new home purchases.

The lucky draw scheme was widely adopted in Shenzhen to streamline sales of new projects, as too many potential buyers, sometimes as many 50 to 100, competed for one flat. The draws allow a potential buyer to get higher up in the queue, giving them a greater chance of buying a home of their choice.

“Since late last year, I found that not many projects need a lucky draw as not enough people are interested in making a bid,” said Tan. “But I might just wait and see.”

Tan is among many potential home seekers waiting on the sidelines now as they are afraid the souring of the housing market is far from over.

“The expectation of a downward trend in home prices has formed,” Chen Shen, an analyst from Huatai Securities. “Demand for homes is likely to remain weak and that will keep Chinese developers’ liquidity tight.”