Bubble half empty.

Tied up today and tomorrow with a couple of real writing matters, but I wanted to get to this before it passes me by …

A few weeks ago I ran into a friend of mine who runs a very successful Shanghai residential real estate brokerage that she started five years ago. Like everyone else in Shanghai, I take a certain unhealthy interest in the value of the city’s real estate – and doubly so now that the Shanghai stock market is down more than half from its high of just over a year ago. Anecdotally, I’ve heard that property owners have begun selling to cover losses. But what, I asked, is the reality?

She smiled and told me that – so far as she’s been able to see – there’s no rush to the doors. “To be honest,” she said (as later recorded in my notebooks). “From a business standpoint, I don’t care if the market is up or down. But right now the problem is that nobody is doing anything. Everybody’s waiting to see what everyone else does.” And this uncertainty, she told me, is the most worrisome trend of all – for a home owner. “I’ve just put my place on the market.”

This conversation came to mind a few minutes ago as I read – in South China Morning Post – these chilling figures [subscriber only]:

Figures released by mainland research institute Youwin show 5.27 million square metres of new residential area was sold in the city between January and June, compared with 10.43 million sq metres last year.

Not chilling enough for you? Well, then. Consider that – just last week – the average home price in Shanghai fell 4.3% from the week before (according to the same SCMP article, citing Youwin). But most nerve-wracking of all are reports – like this one from Shanghai Daily – indicating that market price averages are being propped up by strength at the very top end of the market.

I should concede that I have no particular insight into the direction of Shanghai’s property market (despite reliable rumors that investment houses are trying to liquidate luxury properties). That said, I disagree with the latest conventional wisdom that the Olympics will have little to no effect on China’s property markets. At least in Shanghai, where buyers and sellers are very much in a waiting mode, the least shift in confidence (one way or the other) should be enough to move the market. So why not the closing ceremonies?

[For the record: I don’t believe Expo 2010 can or will replace the Olympics as a psychological economic driver for Shanghai. In fact, if it increases residential supply into the current marketplace, it might actually have a negative impact on property prices.]

5 comments

  1. Adam

    I have been on a real estate project for 2 months now, and the condition is tenuous. I now get calls at 10pm on Saturday night from agents with deals… desperation is kicking in.

    Boils down to a lot of sellers have hit the 5 year tax hurdle and are coming onto market + sales prices at highest ever + buyers unwilling to accept pricing = something has gotta give.

    I give it 20%.

    R
    http://www.allroadsleadtochina.com

  2. Glad to see you get back to some business blogging. Last time I was in GZ I was hearing that the wealthy s.china mainlanders were interested in reinvesting their gains in the US. SZ and GZ were losing the upper end. Also I heard that the credit crunch is hitting some of the bigger developments down there and the contrcters are running out of cash. Anyone else?

  3. All of this rings true and worse. You might want to post the figures on the amount of new housing going on the market right now. There are millions of square meters ready to go on the market over the coming months and construction isn’t abating. If Shanghai’s property market sinks it will have national repercussions. Don’t let anyone fool you.

  4. Property prices both rental and sale have been outrageous here for years. Most of the new housing is at the luxury end. In fact, can someone point me towards any new property being built that is low-mid range afforable housing for young single grads or students?

    The best non-financial world people can hope for in Shanghai is small mercies like this, when the ‘market’ fluctuates. I was in the market to buy a place here two years ago, and after shopping around all I could think of was bloody revolution against the evil land owners – so to speak.

    Here’s a thought – when does a recession cause prices to go up further? In London in the eighties, the market and economy hit a low and the result was the famous story about a broom cupbaord in Knightsbridge going for the same price as three houses in Manchester.

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