Panic Property Buying In China's Shenzhen

In Shenzhen, sellers of homes are defaulting on their obligations to turn over deeds. They would rather pay buyers penalties equaling 20% of purchase prices than go through with sales.

Buyers don’t want the cash, however, and are suing to get title to their apartments and houses. “We have not seen such large numbers of legal disputes between individual buyers and vendors since the last peak in 2007,” said a spokeswoman at Guangdong Xinrong Law Firm to the South China Morning Post.

So what’s going on? Home prices have jumped so much recently that vendors can make more money by cancelling sales, paying penalties, and finding new purchasers at today’s higher prices. As Andy Lee Yiu-chi of Centaline China, a property agency, said in the middle of this month, “Now people are panic buying and not panic selling.”

Welcome to the southern Chinese metropolis across from Hong Kong, the hottest property market in the biggest country in the world. In the 70 cities monitored by the official National Bureau of Statistics, Shenzhen in Mayshowed the largest month-on-month price increase, a stunning 6.6%. That figure is generally in line with other survey results. The SCMP/Creda Index, a collaboration of the South China Morning Post and China Real Estate Data Academy, shows new homes prices in the city climbed 6.7% last month.

Analysts are now worried about the city “overheating.” No wonder Shenzhen sellers are breaking contracts.

The housing sector recovery started in Shenzhen and is now spreading across China. The country’s other three Tier 1 cities also did well in May on a month-on-month basis According to NBS, Beijing prices were up 1.1%, Guangzhou 1.4%, and Shanghai 2.2%.

Elsewhere, residential real estate is still headed down. According to NBS’s official figures, only one of the 70 surveyed cities showed a year-on-year increase in home prices. Across the nation, prices last month fell 5.7% year-on-year.

The decline last month, however, was better than the 6.1% drop in April, so markets could be near the bottom. Moreover, in May month-on-month prices in 29 cities either stabilized or went up. The comparable figure in April was 21. Reuters calculations, based on NBS data, show home prices in the 70 cities rose 0.2% in May from the month before. That was the first increase since May of last year.