Is Shenzhen really as dynamic a tech hub as it is made out to be, or is the story of its “economic miracle” of the past 40 years one that has been underwritten by an ever-rising property market? Investors and economists may soon start to understand this better.
Food for thought has emerged in the city government’s capitulation to property developers this week, as it eased its recent restrictions on land sales. Developers in the country’s richest city, home to Evergrande, are seeing their markets shrink at a previously unimaginable pace.
According to SCMP: Shenzhen has relaxed the conditions for taking part in land sales, one of the first among China’s local authorities to backtrack from the draconian measures that have sent the entire country’s real estate industry into a tailspin. The bureau put 11 plots on the market last week, the third land sale this year.
The news was quickly followed by another report (Yicai) indicating that the city’s property market was plunging. Although prices in the overall market have not yet dropped, edging up slightly in September for new homes and dropping slightly in the secondary market, October figures show volumes falling to levels not seen in nearly a decade. Some 1,605 second-hand homes were sold, down 9.1 percent from September, according to data from Centaline Property’s Shenzhen research center.
The trend seems likely to continue, despite the city government’s about-face on land sales. This is because, as Bloomberg points out, the city’s developers are under enormous pressure to offload finished homes.
What is not mentioned in any of these reports is another major factor affecting the city’s property market: population growth has been capped. Shenzhen has been one of the country’s two fastest-growing cities for the past decade (the other being Guangzhou). No longer. Subsidies and other incentives to attract “talents” have been almost frozen. Projections for the city’s population growth in the coming five years are close to zero.
The question that will need to be answered in the coming decade by Shenzhen is one that will apply to the entire country, of course: can it continue to develop its economy through high-tech innovation, when the foundations of its wealth – property values – are no longer rising inexorably? The backslide by the city government on land auctions suggest it is not yet ready to endure the pain that comes with such a transition.