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Prospective homebuyers weigh up their options
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ABOUT ten days ago, George Wang, a commercial video producer in his mid-30s, finally bought his first home — a 100-square-meter, two-bedroom furnished apartment within a stone’s throw from the Century Avenue Metro hub. It cost him about 7.4 million yuan (US$1.09 million).
“Despite the fact that the building is already over 20 years old, I don’t think it’s expensive, considering its prime location and quality,” Wang told me last week over a hotpot gathering for a mutual friend.
“I have been checking property developments since last year,” he added. “I have seen with my own eyes how crazy the market has become. I’m glad it’s all over now. It’s a relief for me, no matter what.”
Wang is probably not alone in managing to nurture a somewhat upbeat attitude toward Shanghai’s housing market, even as home prices continue an upward trajectory that puts them out of reach for many ordinary wage earners.
Wang, as a qualified first-time homebuyer, was required to put down a minimum 30 percent down payment after signing the purchase contract. If he was lucky enough to get a 20-year mortgage for over 5 million yuan from both a commercial lender and the city’s public housing fund, which provides cheaper lending rates, then his monthly repayments may well exceed 20,000 yuan per month.
That’s about half the average per-capita disposable income for urban residents in Shanghai, according to nine-month data from the city’s statistics bureau.
“Gone are the best days to purchase a home in the city, but it is probably not the worst time either as the government puts a short brake on soaring home prices to curb speculation,” said Wang.
Indeed, the municipal government is once again trying to ease some of the froth out of the housing market. On October 8, the city announced a new set of measures, including increasing the supply of government-owned land it sells for development and strengthening supervision over funding sources used to buy that land.
The city is also beefing up its monitoring of new home prices and said it will release regular updates on the property market to stabilize expectations.
“This policy stance is expected to remain at its current tight level, with some potential for further restrictions if the government feels it necessary to tame price growth further,” said Stephenie Zhou, head of residential for JLL Shanghai. “As such, both sales volume and prices are likely to stabilize in the short term.”
Sentiment among both homebuyers and real estate developers did dim sharply in Shanghai in initial response to the new government initiatives.
In October, the volume of new homes sold, excluding government-funded affordable housing, fell 16.3 percent from a month earlier to 869,000 square meters. That was the lowest in eight months, according to a report released by Shanghai Centaline Property Consultants Co.
On a year-to-year basis, the figure plunged 42.5 percent. October is usually one of the most robust months for property sales.
On the development side, only 299,000 square meters of new housing was put on the market in Shanghai last month, a 56.2 percent drop from September and an 82.8 percent dive from a year earlier.
Prices were mildly less volatile. New homes were sold last month at an average 43,838 yuan per square meter, down 2.2 percent month on the month, amid stricter pre-sale approval and registration procedures. However, prices still surged 31.7 percent from a year earlier.
Commercial banks in Shanghai, as well as in major cities across China suffering from similar overheated markets, have tightened their scrutiny over loans to both real estate developers and individual mortgage borrowers.
In mid-October, the Shanghai Office of the China Banking Regulatory Commission held a meeting with the country’s “Big Five” lenders and other major commercial banks to discuss escalating home prices. The office reiterated that banks must follow the curbs adopted in March to tame soaring prices.
Some banks, for instance, have been asked to stop issuing loans to property developers for land purchases. As for housing loans, the eligibility of mortgage borrowers who quickly divorced to get around regulations on second-home purchases is now under tighter scrutiny. Many couples have gone through contrived divorces to qualify as first-time homebuyers and enjoy preferential mortgage policies.
Tightened credit to the property sector and strict adherence to regulations on higher mortgage down payments and home purchase restrictions may lead to a mild retreat or even a prolonged flattening of home prices in first-tier cities, according to industry analysts and individual buyers like Wang. However, they aren’t likely to puncture the property bubble.
“With many homebuyers disqualified from making further purchases, investor sentiment in major cities has weakened and residential sales are likely to decline,” said Sam Xie, head of CBRE Research China. “However, given the current low inventory levels, a price correction is unlikely to occur before the second quarter of 2017.”
The local inventory of new houses currently stands at around 6.3 million square meters, meaning fewer than 40,000 units available for buyers, according to the city’s official real estate information website.
“It just feels good to have a place of my own,” Wang said, with obvious relief. “I can hardly wait to throw a house-warming party. I don’t really see any reason for not being optimistic about the housing market in cities like Shanghai, where demand for a home will continue to be high.”
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