Shanghai home sellers forced to offer big discounts as transaction volume slides
In this Oct. 17, 2022 file photo, a man walks in front of residential buildings in Shanghai. SCMP
Homeowners in Shanghai hoping to sell their flats are offering discounts of up to 10 percent to attract a dwindling population of would-be buyers amid a weak property market and bearish forecasts for the economy.
The home-selling spree under way in the mainland's commercial and financial hub, which is likely to further depress prices, is the latest sign that mainland China's property market is stuck in what some experts are calling a “death spiral”.
“More homeowners have decided to cash out because they are betting that home prices will continue to fall,” said Song Yulin, a senior manager with property agency Lianjia. “Some of them have made plans to migrate to foreign countries and they are happy with the current prices even if they have to offer a discount.”
About 200,000 pre-owned flats in Shanghai were up for sale at the end of April, up from about 100,000 in mid-March, according to data by Centaline Property.
This hefty surge in the number of available homes has turned the secondary market into a buyer's market, according to Tan Taipeng, a manager with property agency 5I5J.
“It is not unusual that buyers ask sellers to slash the prices by 10 to 15 percent because they have a lot of options now,” he said. “This is a rare scene in Shanghai's home market, where the supply of used homes has been limited.”
A 10 percent price reduction could translate into 1.5 million yuan ($208,920) less in profit for a homeowner in Shanghai, since a three-bedroom flat in the city's downtown areas could sport a price tag of 15 million yuan.
However, as beneficiaries of what has been a buoyant home market in China's most developed metropolis, most of the sellers are still reaping a tenfold or greater investment return, even after a 10 percent price cut, Tan said.
As would-be buyers take a wait-and-see attitude, transaction volume has declined quickly. A total of 24,000 pre-owned homes changed hands in March, followed by 17,700 units in April, according to Centaline.
May transactions fell another 13.3 percent to 15,300.
A visitor takes in the view from the observation deck at Shanghai Tower in Shanghai, April 9. SCMP
“A lack of buying interest may unnerve those owners who are determined to exit,” said You Liangzhou, who owns Baonuo, a property agency in Shanghai. “Some will offer even bigger discounts to find buyers.”
The sluggish property market deals yet another blow to Shanghai's local economy, which has yet to recover from three years of strict COVID-19 pandemic curbs.
The city's gross domestic product (GDP) expanded 3 percent in the first quarter of this year, compared with 4.5 percent for the whole mainland China.
Shanghai set a GDP growth target of 5.5 percent for 2023, 0.5 percentage points higher than the national figure.
Across the mainland, investment in the property sector fell by 7.2 percent in the first five months of the year.
Nomura chief China economist Lu Ting said in a research note early this week that it was time to refocus on the property sector to drive up China's economy and construction activities.
A weak property sector has had a knock-on impact on the steel and cement industries, Lu said, adding that the government would roll out stimulus measures soon to spur the real estate sector. (SCMP)
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