'Property flu' floors China's housing market
By Candy Zeng
SHENZHEN - After years of booming and swelling, housing markets in some major
Chinese cities finally become chilled in the early winter of 2007 following
consecutive cool-down policies by the government. Starting with the southern
Guangdong province metropolis of Shenzhen, the so-called "property flu"
nicknamed after the bird flu, hit first with the collapse and/or downsizing of
a number of real estate agencies beginning in November.
The first domino to fall was generally believed to be Zhongtian Real Estate, a
relative newcomer in the last three years in Shenzhen. Its problems were
highlighted when its president and
co-founder Jiang Fei went missing on November 13 and leaving a deficit of about
170 million yuan (US$23 million) in his wake.
Jiang, 33, is suspected of going into hiding with a large sum of customer
advance payments deposited in a warrant company controlled by Zhongtian. With
Jiang's disappearance, the company suspended business with its employees
unpaid. On the day he was found missing, 23 victims went to the local public
security bureau claiming losses totaling 260 million yuan.
Ironically, the property agency was undergoing a large expansion three months
before its sudden collapse. In Shanghai, it opened 21 new outlets in July, in
addition to its 140 outlets in Beijing, Shanghai, Chengdu and Shenzhen. The
business set up by Jiang expanded from only 5 shops in 2003 to a housing
brokerage chain hiring 2,000 staff nationwide and ranked among top five in
Shenzhen.
The "golden autumn" didn't come as it had in the last three years in the
Shenzhen property industry. In October, housing prices in Shenzhen began to
fall after the transaction volume shrank for three consecutive months.
According to some statistics, transactions of second-hand homes in the city
plunged from some 12,000 units in July to 3,343 units in October. Meanwhile,
the average price of new homes finally began to drop, down by 10% to 14,797
yuan per square meter on average as compared to September.
Jiang's story was a typical rags-to-riches story in Shenzhen. In 2002 he was an
ordinary Shenzhen salesman who then took over Zhongtian in partnership with
several friends and controlled the agency in less than a year.
As the housing prices in Shenzhen surged more than three fold in the last three
years, Jiang's shops also swelled. He allegedly embezzled down payment from
clients to set up new stores in new cities and bought many properties under his
name using financial leverage. When the market began falling, his agency
outlets suffered and Jiang was in huge debt due to mortgage loans.
Three weeks after the collapse of Zhongtian, Changhe, another of the top 10
property agencies in Shenzhen, announced the closing of some 20 shops
simultaneously. Hundreds of Changhe staff went to the local government to ask
for back pay, fearing its general manager would flee with the company's cash
assets as Jiang did.
Founded in 2002, the company had 60 outlets in Shenzhen at its peak. Following
the closing of the 20 outlets, Changhe shareholders decided to shut them all
and carry out a liquidation process on December 4. Changhe general manager Pi
Jinzhou later appeared in front of local media and said the company will sell
its fixed assets to pay off its debts to customers and employees.
The company's lawyer Zhao Long said Changhe was a victim of China's property
agency expansion bubble bursting, and blamed it on the central government's
macro-economic control policies and the sharp fall of property trading volume.
Property prices in Shenzhen rose by more than 20% in June on a year-on-year
basis. The upper-end houses even saw 50% increase in their prices in the first
half of this year, attracting hot money that was retreating from the Yangtze
River Delta regions in 2005.
In the second half of June, some commercial banks in Shenzhen suspended
mortgage loans to second-hand home buyers for fear of high risks. In September,
the central bank rolled out a policy requiring larger percentage of down
payments as well as higher mortgage interest rates of mortgage for second home
buyers. The tightened financing tools squeezed speculation and was the last
straw to for the blindly expanding property agencies.
In October, almost all property agencies in Shenzhen reported losses after
transactions steadily decreased in four months from July. An insider estimated
that at least 15,000 property salespeople lost jobs in the four months and
expected some 30% of property agency would be out of business by early spring
of next year.
In Shanghai, sales of new homes fell by 20% in October and 10% in November
month-on-month. Though the official statistics report flat housing prices,
developers began to give more generous discounts to home buyers recently. Some
people began to withdraw deposits from developers for apartment reservations.
The "property flu" that began in Shenzhen seems to begin spreading to other
major cities including Beijing, Shanghai and Guangzhou, the provincial capital
of Guangdong province. In Beijing, recent official statistics showed that the
average price of new homes dropped by 358 yuan to 14,966 yuan per square meter
in November from the previous month with the total trading volume also down by
10%. A property agency estimated that transactions of second-hand homes
accounted for less than 10% of the total transactions in October in Beijing.
In Guangzhou, the government auctioned 10 pieces of land to developers on
December 6 with a total area of 690,395 square meters. The deals were reached
at exceptional low prices ranged from 1,482 to 4,241 yuan per square meter. In
September, two plots of land in one area of Guangzhou were sold out at some
8,000 yuan per square meter. Recently in the same area, another two plots were
auctioned only at 3,324 and 4,241 yuan per square meter.
Will the "flu" drag the country's spiraling property market into a recession?
While potential home buyers do hope for lower housing prices, analysts,
developers and agencies have different opinions on the issue.
"The tightened credit policy has changed people's expectation of property
appreciation, which curbed speculation to some extent," said Zhou Jinnan, chief
analyst of a Guangzhou property agency, "But 70% of home buyers in Guangzhou
are not speculators. With the rigid demand and new credit quotas next year, the
property market will recover in three months."
Candy Zeng is a freelance journalist based in Shenzhen, China.
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