Lady Luck enters the home-buying market

It seems there's one more step to buying a dream house, or perhaps even just putting a decent roof over your head. Lady Luck needs to be on your side.

Proven yourself an eligible homebuyer in Shanghai? Yes. Ready to dig deep into your pockets and commit to mortgage payments for the next 20 or 30 years? Yes. Wait! It seems there’s one more step to buying a dream house, or perhaps even just putting a decent roof over your head. Lady Luck needs to be on your side.

That situation was pretty evident earlier this week at Ocean One, a COFCO Property development in Qiantan in the Pudong New Area. Some 3,127 groups of interested buyers sought purchase rights to 437 fully decorated apartments spread over five 16-story buildings. It was part of a government-required lottery-like registration system, and as you might guess, the success rate stood at no more than 14 percent. That was the lowest rate since August 2017, when a new development in outlying Jiading District became the first residential project in Shanghai to deploy a lottery-style system to decide the order of purchasing rights. 

Under an official guideline released last May, the process must be determined by lottery software provided by authorized notaries in the city, with results published immediately after the draw. The initiative was launched to protect the rights of buyers and crack down on underhanded deals in the real estate market, industry analysts said.

To qualify for the “lottery,” interested buyers at Ocean One had to present bank proof showing that they had a minimum of 2.85 million yuan (US$450,685) in a demand deposit account. That amount was calculated according to the 35 percent minimum down payment ratio in Shanghai for a home purchase of 8.15 million yuan, the average cost of a unit at Ocean One.

To register for the “lottery,” buyers also needed to pay a 1 million yuan deposit to the developer. About two weeks prior to that, Lakeville Luxe, a renowned Shui On Land development in the downtown Xintiandi area — a local luxury benchmark — attracted 385 groups of interested buyers seeking rights to 118 apartments that sell for 35 million yuan and up. In one case on the opposite extreme, only five home seekers expressed interest in more than 160 units selling at average prices between 24,000 yuan and 37,000 yuan per square meter.

A defining factor in buyer sentiment are price caps imposed by the government and the gap between newly released projects and existing ones. The larger the gap, the more people lining up for lotteries.

“The lottery-like registration system implemented in a number of Chinese cities over the past few months has offered us a different and interesting perspective to peek into real scenarios in the market,” Ding Zuyu, co-president of E-House (China) Holdings Ltd wrote on his public WeChat account. “In many cities, housing projects recorded very mixed performances, and the markets seemed to be quite polarized,” he said. Kismet effect

Of the 38 new residential projects that published “lottery” results in Shanghai between January and April 19, 20 had a success rate of 100 percent, suggesting no competition at all, according to Today Property, a daily TV program focusing on real estate news.

“With the policy stance expected to stay tight and more cities joining in the government crackdown, a wait-and-see sentiment will continue to bite the market,” said Lu Wenxi, senior manager of research at Shanghai Centaline Property Consultants Co. “However, price caps on new projects will surely make some of them very attractive to buyers. More developers have lost their patience with haggling with the government for presales licenses, amid continuously rising cash flow pressure.”

Prices for the 118 apartments at Shui On’s Lakeville Luxe, for example, range between 120,000 yuan and 190,000 yuan per square meter, which is almost equivalent to that of an earlier release of units in November 2015, according to Centaline data.

In the first quarter of this year, the area of new homes sold in Shanghai, excluding government-subsidized affordable housing, fell 20 percent from a year earlier to 1.2 million square meters. On the supply side, about 930,000 square meters of new housing hit the market, a decline of 8.6 percent, Centaline reported.

“A shortage of homes and a further tightening of credit policies are casting a shadow over any major rebound in home sales this year,” said Jenny Wu, senior director and head of residential for Cushman & Wakefield’s East China operations. “The market is expected to remain rather stable, with undecided buyers prevailing. We suggest the government consider adopting differentiated credit polices, that is, different down payment requirements and mortgage rates for homes in different price ranges.”

Starting this month, many banks in Shanghai reduced the mortgage rate discount from 10 percent to 5 percent for first-time buyers.

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