Shenzhen’s surreal estate

Shenzhen: mainland China’s second priciest property market

Remember those elementary maths problems at school that you solved using fruits instead of numbers? Homebuyers in Shenzhen are having to resort to something similar to work out how much a property is worth.

A recent listing by a property agent in the city caught the attention when it used types of fruit as code for home prices. For instance, a 144-square metre flat in Shenzhen’s Nanshan area was worth two durians and seven bananas. A 323-square metre apartment in the same complex had an asking price of six durians and five bananas. One durian represented Rmb10 million, while a banana equalled Rmb1 million.

Why not just publish the raw numbers for the property prices? Since February this year, the Shenzhen government has been setting “reference prices” for lived-in homes at below market levels, a move aimed at stemming a housing bubble in the city. But the reference prices are often 10% to 40% below what buyers are prepared to pay in the secondary market. While the government cannot control final closing prices, theoretically these shouldn’t exceed the reference prices by too much. To circumvent government policy and avoid quoting the reference price, the Macalline Love Home Agency adopted fruit symbols as substitutes for prices.

After Shenzhen’s new pricing guidelines were imposed, many sellers pulled their listings from the market, and fearful property agents stopped publishing market prices for secondary homes. According to 21CN Business Herald, some property agents have gone out of business because the number of transactions has slumped. “While the incident of using fruits as codes for listing prices seems almost absurd, it is also an inevitable outcome of the current policy and regulations. Nonetheless, it also reflects the market’s demand for more objective home prices,” one insider told China Times.

The aforementioned fruit cipher for the Nanshan apartment is quite a bit higher than the official reference price. The owner is asking Rmb27 million ($4 million) for the apartment, while the official reference price is Rmb15.9 million, or Rmb110,500 per square metre. The Shenzhen government says it has issued a warning to the property agency for its “misconduct” in using the fruit code. “The Macalline Love Home Agency inflated the prices of second-hand units well beyond official limits and tried to disguise the fact by displaying a cipher that used durians and bananas in place of numerical values,” Xinhua thundered.

Banks are also being pressured into accepting the lower reference prices in the calculations of mortgage loans, forcing homebuyers to come up with higher downpayments. At least three lenders – China Construction Bank, Bank of Beijing and Bank of Communications – have adopted the official reference prices as the basis for vetting mortgage loan applications in Shenzhen, the local media reported.

The controversy comes at a time when new home prices in Shenzhen have continued to climb. Last year, average prices in the metropolis stood at Rmb54,948 per square metre, the second highest in mainland China after Shanghai’s Rmb55,990, according to data from China Real Estate Information Corporation.

Part of the reason for the rise is the number of people arriving in the city to work. The local population grew to 17.6 million by the end of 2020, blowing through the target of 14.8 million set in 2016, according to census data released last month (that was an annual growth rate of 5.35%).

Beijing and Shanghai – classed as first-tier cities in the same way as Shenzhen – grew at 1.1% and 0.8% respectively in the same period, in part due to stricter rules to curb population growth.

Zhang Meng, who moved to Shenzhen back in 2014, has been trying to buy a flat in the city for the last seven years but every time she came close to taking a decision, house prices went on another surge upwards. “It seems like there’s no shortage of wealthy people in Shenzhen. New houses sell out as soon as they come onto the market and second-hand homes can be even more expensive than new ones. With my current income, I still can’t afford a house in Shenzhen,” she complained to 90 Degree Real Estate, a property news blog.

Zhang added that many of her friends are in a similar position and have chosen to move to neighbouring cities where property is more affordable, like Guangzhou.

Many of the new migrants arriving in Shenzhen are young and well-educated, drawn to job opportunities in the tech hub. The latest census shows that Shenzhen’s population aged between 15 and 59 is now about 14 million, accounting for 79.5% of the total. That is 16.2 percentage points higher than cities in other parts of the country.

In an effort to put the brakes on population growth, Shenzhen authorities have announced that they are phasing out preferential policies designed to attract skilled personnel. Beginning in September, the city will no longer offer financial support to university degree holders seeking residency permits.

Some, however, have argued that the high property prices may not be a bad thing as they weed out the would-be residents with lower earning power. “High housing prices in some ways act as a screen. They enable those who are strong enough to take root, contributing to the continual development of the city – and screen out the weak. After all, Shenzhen is small and already too crowded. It is simply the survival of the fittest. The strong survive, the weak move out,” 90 Degree Real Estate concluded, rather grimly.

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