Second-hand home sales in Shenzhen tumbled over 70% on year in June, several other cities also saw cooling markets

>>> THE WIRE - Walk You Through Every Trading Day

Second-hand home sales in China’s southern tech hub of Shenzhen tumbled by more than 70 per cent year on year in June after a series of government measures to crack down on housing market speculation.

Second-hand home transactions in the city dropped to 2,575 units in June, slumping 76 per cent from the same period last year and down 15 per cent compared to the pervious month, according to data from Centaline Property. The sales figure has stayed below 5,000 units for three consecutive months.

Housing market in Shenzhen had been robust in recent years, with monthly apartment sales regularly between 5,000 – 8,000 units. Therefore, many see 5,000 units as a key level for prosperity of the city’s housing market while a figure above 8,000 units is seen as a sign for overheating market.

For the first six months of the year, second-hand transactions in Shenzhen declined by 35.4 per cent year over year to 28,442 units, showed the data.

Whiles the second-hand home market is cooling rapidly, new home sales in the city remained resilient. New home transactions increased 7.1 per cent in June from the previous month to 2,866 units and new home sales measured in floor space grew 5.8 per cent to about 281,000 square meters, according to the data.

For the first six months of the year, new home transactions in Shenzhen surged by 57.8 per cent year over year to 26,140 units, showed the data.

As downpayment requirement for new home purchases are generally lower than that for second-hand home purchases, home buyers tend to choose new homes, said analysts at the research center of Centaline Property in Shenzhen.

The overall volume combining the data for new home and second-hand home transactions still declined to 5,441 units in June, down 4.6 per cent from a year earlier.

The market currently doesn’t expect home prices rises in the near term, so home buyers slowed the pace of home purchases and become more rational in choosing properties, said Centalian Property.

In recent months, officials in Shenzhen have tried a number of tactics to curb speculation and keep price growth under control. Among the most aggressive is a plan, thought to be China’s first, to manage home-sale values by setting guidance prices for banks to follow when approving mortgage loans.

The Shenzhen Housing and Construction Bureau in February issued the reference price list for second-hand homes in 3,595 residential communities, with average prices for such homes having risen to 66,000 yuan ($10,150) per square meter last year — up 10 per cent year-on-year — according to Leyoujia Research Center.

After months of government crackdown, an index tracking second-hand home prices in Shenzhen fell by 0.1 percentage point in May from the previous month, according to data released by the National Bureau of Statistics, marking the first drop since July 2019.

“The drop is of significance as it suggests the latest round of home price rally in the city may be peaking,” said Li Jiyu, chief analyst at the Housing Policy Research Center of Guangdong Province.

As the market cools, property brokerages are having a tough time. According to data from the Shenzhen Real Estate Intermediary Association, as of April 1, the number of total registered brokerages was 2,894, with the number of new registrations at 118 in the first quarter, down 6 per cent from the previous three-month period and down 9 per cent from a year earlier.

Shenzhen is not a standalone case. Many other cities are also seeing a cooling market for second-hand homes. According to the Beike Research Institute, second-hand home transactions in China’s top 50 cities fell by about 20 per cent in June from the previous month and the growth of second-hand home prices narrowed to only 0.2 per cent month on month in June after rapid growth earlier this year.

Wang Qing, chief macro analyst at Golden Credit Rating International Co., Ltd. , said that new long- and medium-term banks loans to the household sector fell year on year in May for the first time this year, which also proves that housing markets are cooling down amid stepped-up property curbs.

Data from Beike also showed that average waiting time for home mortgage loans in China’s 72 major cities was 50 days in June, 2 days longer than the previous month. In particular, waiting time in Guangzhou extended by 14 days last month to 98 days, while that in other cities in the Greater Bay area such as Foshan, Dongguan, Zhongshan and Huizhou has increased to above 100 days.

Analysts say the slowing home mortgage loans came as some banks have inadequent quota for mortgage loans. “Banks used a big part of their annual quota for second-hand home mortgage loans earlier this year amid an overheating housing market, leaving limited quota for the remainder of the year,” said Song Hongwei, research director at Tongce Research Institute.

Data from the PBOC showed that new long- and medium-term loans to the household sector reached 1.98 trillion yuan in the first quarter of the year, a new high in nearly ten years.

Xu Xiaole, chief analyst at Beike Research Institute, expects credit to the housing market to remain tight in the second half of the year and second-hand home transactions to drop further, while prices are expected to remain largely stable.

“Given the expectations of global inflations, the surges in commodities prices will be transmitted to the consumer side, driving up China’s domestic inflation. Beijing is maintain the the policy of ‘stable monetary and tight credit’. Credit conditions for the real estate market will remain tight and home buyers will continue to see rising mortgage rates, longer waiting time and tougher scrutiny over non-financial institutions’ lending to the real estate sector,” said Xu.