- The Shanghai property sector will not benefit from monetary easing, since the local government is adamant about curbing price jumps, JLL China says
- Must face reality that the market is stuck in a downward trend, homeowner says
Quinn Wang, 48, a mid-level manager with a manufacturer of chemical products owned by the local government, is very disappointed by the Shanghai government's efforts to keep home prices in the city under control.
Wang plans to sell one of the three flats he owns in Shanghai to pay for his son's education abroad. "Frankly, it is disappointing to me that austerity measures (introduced) to rein in home prices will be unchanged this year," he says. "I cannot afford to wait for a rebound since my son needs the money for his education urgently."
A quiet market has already reduced his personal wealth by about 500,000 yuan (US$72,000) over the past two years, with the municipality maintaining a tight grip on the real estate sector.
"I could have sold the property at a higher price two years ago … It is a hard lesson for me that home prices could also turn out to be volatile, like the stock market," Wang says.
Moves to ease mainland Chinese monetary policies had sparked speculation that the country's property market would get a shot in the arm, with ample cash eventually driving up home prices.
In late December, China's central bank decided to lower borrowing costs for businesses and individuals by embarking on the loan prime rate (LPR) mechanism and replace the old loan-pricing system. Early this month, the People's Bank of China also cut the required cash reserve ratio for commercial lenders by 50 basis points, injecting 800 billion yuan in liquidity into the financial system.
It is also widely expected that Beijing will reduce interest rates this year to buoy the slowing mainland economy, which grew 6 per cent in the third quarter of 2019, its slowest pace since records began in 1992.
On January 15, however, Ying Yong, Shanghai's mayor, told the local legislature that the municipality would continue to stabilise prices of homes and land, cooling expectations of a hefty increase in property prices. Shanghai was pursuing an orderly pace of economic growth.
"The property sector in Shanghai is not among the beneficiaries of monetary easing, since the local government is adamant about curbing price jumps," says Daniel Yao, head of research at property services firm JLL China. "It is highly likely that the pre-owned home market will remain weak in 2020."
"The belief that Shanghai home prices will always rise has been proven to be incorrect," says Reno Chen, another homeowner who intends to sell a flat. "We have to face the reality that the market is stuck in a downward trend."
Over the past two decades, homeowners in Shanghai, the mainland's most developed city, had got used to surging property prices. In 2016, the city launched a series of policies to cap soaring home prices, which included higher mortgage down payments and a raised threshold for non locals buying homes.
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According to home-listings service provider Anjuke, the average second-hand home price across the city fell 4.1 per cent to 50,017 yuan per square metre in 2017, before falling another 1.1 per cent to 49,446 yuan the next year. In 2019, prices rebounded 3 per cent to 50,945 yuan.
However, anecdotal evidence suggests it is very much a buyer's market in Shanghai, with property sellers forced to lower their prices to get deals down.
Wang, for instance, hoped to sell a 100 square metre flat in the city's southwestern Xuhui district at 50,000 yuan per square metre, only to find that it could not be sold unless he lowered his asking price to 45,000 yuan per square metre.
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"Seriously, the overall market data has nothing to do with me," he says. "The ground reality is that there is a lack of buying interest, and the limited number of would-be buyers have strong bargaining power to force us to slash prices."
Sam Xie, head of research at CBRE China, says the local government's firm stance on the new home market will continue to have a ripple effect. Shanghai's housing authorities have implemented price controls on newly built homes, with developers not allowed to sell properties at prices exceeding caps imposed by the government.
"The policies for the new home market continue to have a big impact on the second-home market, dampening expectations for a rebound in second-home prices," he says. "The market will remain stable amid the government's efforts to rein in home prices."
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