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Real Estate
The secret behind the rocketing price of Shenzhen's real estatePosted by Banyue, July 12, 2007 5:13 PM
After two consecutive years of government price adjustments and controls on real estate, prices are still jumping upward rather than declining. Shenzhen is indisputably the bellwether of this rising tide: housing prices in Shenzhen leaped 50% in the first half of this year.
Shenzhen has been going through an unprecedented real estate boom during the last 18 months; average housing prices have risen from 7,000 yuan (US$922) per square meter to 16,000 yuan (USD$2,109) today. According the SW article, the primary reason is that supplements in the currency market are above their normal level. In other words, there is too much money in the Chinese market. Under these conditions, people will generally choose to spend their extra cash on investments, but Chinese people do not have many choices of places to invest. Most of them choose immovable property rather than the high risk stock market. At the same time, the rising RMB has attracted many foreign investors, bringing even more money into the market. Add in speculative buying and developer hype, and it's not very hard to understand the situation. In the conclusion of the article, the reporter quotes an anonymous real estate businessman: "A crash is inevitable, maybe next year, maybe beyond. When that day comes, nobody can escape." |
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Comments on The secret behind the rocketing price of Shenzhen's real estate
So what's new?
Liquidity does cause price rises - ie inflation. This is happening all over the world. When the crash comes (and liquidity recedes), the decline in house prices will be matched by a rise in the value of the currency. So you will get different winners and losers. Currently, it's house owners who are benefiting from real estate. After the crash, it will be people who haven't been able to buy so far - their money will go much further, depending on the severity of the crash.
Whether a crash comes...the world is waiting with baited breath. It's not going to be restricted to Shenzhen.
I think there are two factors triggers the property price soars in Shenzhen:
1) the market expects the housing price gap between Shenzhen and Hong Kong narrows with its easy access to Hong Kong
2) land use right, property development right and the property are controlled by a collusive group of property developers, property agency and even the authority, they exercise their control over the rights and end-products to manipulate the price in the market
Following to the trend of RMB appreciates against HKD, the property price in Shenzhen will accelerate compared to its neighboring city Hong Kong. It will be interesting to analysis and compare the housing affordability of the current situation in Shenzhen, the current situation in Hong Kong and the situation in 1997 before the collapse of Hong Kong property market.