[HONG KONG] Would-be sellers of homes in China's southern city of Shenzhen are tearing up signed sales contracts in anticipation that prices there will continue to surge, the country's largest property agency said, fuelling fears of overheating in the top-tier city.
Home prices in Shenzhen are set to post a second consecutive annual rise in May data out on Thursday, helped by scarce land supply, favourable policies towards local enterprises, and a stock market rally that has seen the Shenzhen index more than double this year.
China Resources Land is launching a third batch of units in its CR City Phase One in Shenzhen this weekend at an indicative average selling price of 55,000 Chinese yuan to 65,0000 Chinese yuan per square metre (US$8,860 to US$9,665).
These prices are up to 40 per cent higher than the first batch launched in October last year at 43,000 yuan/sqm and 47,000 yuan/sqm in November.
In contrast, property markets in other first-tier cities, such as Beijing and Guangzhou, show signs of cooling.
Shenzhen was the first city to see a rebound in housing prices in April, reversing a six-month slide. Home prices rose 0.7 per cent compared to a year earlier, outperforming a 6.1 per cent decline in the overall market. Prices climbed 1.8 per cent from March.
China Real Estate Index System (CRIC) forecast primary home prices in Shenzhen climbed by a further 2.89 per cent in May, compared to 0.75 per cent in Beijing and 0.95 per cent in Shanghai, while prices in the secondary market are expected to have surged 9.2 per cent.
"The recent housing rally is the fastest I've seen in years, which gives people great incentive to forfeit their sales contracts," said Alan Cheng, Shenzhen general manager of property agent Centaline, adding that around 20 per cent of clients have done so since mid-April. "The market is definitely not healthy now; its rise is too big. I expect property prices to be like A-shares; they will need a rest after such a fast rise."
Shenzhen's home sales surged 91 per cent by floor area in the first five months of this year compared to the same period a year earlier, CRIC data showed.
As the property market heated up, several banks in the city decided to increase mortgage rates, China Business News reported last week, while lenders in other cities are still cutting rates to lure home buyers.
A wealth effect from the stock market boom is in part driving up the property market, with investors re-investing gains from stocks into real estate, property agents and investors said. Shenzhen stocks have gained 120 per cent so far this year, outperforming Shanghai stocks which have advanced 60 per cent.
Shenzhen's property boom is not spilling over to other cities, however.
Dalian Wanda Group chairman Wang Jianlin, China's richest man according to Forbes, told The Beijing News in an interview last week that excess supply in third and fourth-tier cities will not improve much despite a series of stimulus measures. "Even without any new supply, it will take China's property market three years to de-inventory in order to see a long-term healthy state," Mr Wang said.
Inventory remains high in many lower-tier cities. Haikou, the capital city of resort island Hainan, and Shengyang, the largest city in Northeast China, would need 48.8 and 28.8 months respectively to clear all the inventory, CRIC said.