Itch to buy, easy money hoist home sales

Shanghai’s residential property market has weathered the coronavirus outbreak better than expected, fueled by unshackled pent-up demand and relaxed government monetary policy. Home sales are returning to brisk levels.

In May, sales of new homes, excluding government-subsidized affordable housing, jumped 72.5 percent from April to a 44-month high of 1.05 million square meters. At the same time, sales of existing homes rose 16 percent to an almost three-year high of 29,000 units.

"The unleashing of pent-up homebuying demand that built up during the coronavirus outbreak, coupled with increased liquidity by the central government to support the economy, contributed to a 'better-than-expected' recovery of the country's residential sales market," John Lam, head of Hong Kong-mainland real estate research at UBS, told an industry outlook teleconference earlier this month.

The revival is welcome news after a bleak first few months.

In February, the month coronavirus turned into an epidemic, new home sales fell to 115,000 square meters in Shanghai in the absence of new listings from 480,000 square meters in January.

In March, sales more than tripled to 377,000 square meters and closed April with transactions covering 612,000 square meters, according to monthly reports from Shanghai Centaline Property Consultants Co.

"The residential property market has witnessed dramatic changes in the course of the first five months of 2020," Shirley Tang, senior director of Savills Shanghai residential sales, told Shanghai Daily in a recent interview.

"February and March were plagued by overwhelming worries and anxieties as COVID-19 confined most people to their homes,” she added, “but growing optimism followed in its wake amid unleashed demand.”

Existing home sales have followed a similar trajectory.

In February, occupied home sales were at about a quarter of normal levels, with some 5,000 units sold. The number jumped to 15,000 units in March and to 25,000 units in April, according to Shanghai HomeLink Real Estate Co.

"The successful containment of coronavirus in the city and around the country helped lift sentiment among both real estate developers and home-seekers,” said Lu Wenxiu, a senior researcher with Centerline. "Transaction volume aside, the average price of new homes surged to an 18-month high amid a shift toward higher-end properties.”

The average price of a new home hit 63,341 yuan (US$8,929) per square meter in Shanghai last month, up 5.3 percent from April and its highest level since November 2018, according to Centaline.

"Ample supply of high-end houses, particularly medium-size and smaller ones mean more affordable unit prices,” said Tang at Savills, a 20-year veteran in the market.

Year to date ending May 20, more than 70 percent of the 3,300 local supply of new luxury homes -- defined by Savills as costing more than 20 million yuan or 80,000 yuan a square meter -- were 150 square meters or less.

By price, homes costing less than 10 million yuan totaled 1,211 units, while those selling for between 10 million yuan and 15 million yuan per unit accounted for 1,118 units.

In the top-end segment of homes costing 30 million yuan or more, 98 units were sold in April, an increase of two-thirds from the previous month. In May, those sales rose 108 percent. In the existing home market, sales in April gained 122 percent, while May had a 40 percent rise, according to HomeLink.

"Real estate, particularly in China's first- and second-tier cities, always remains a comparatively good investment option as the central government continues to lower interest rates and cut banks’ reserve requirement ratios," UBS’s Lam said.

The People's Bank of China has reduced the reserve requirement ratio for financial institutions three times this year, which means banks have to hold less money in reserve. That released 1.75 trillion yuan into the banking system.

During the 13th National People's Congress late last month, policymakers signaled “significantly higher” broad money supply and an increase in social financing funds.

M2, the measure of broad money supply, rose by double digits in March and April for the first time in three years, and social financing climbed 12 percent in April from 10.7 percent in 2019, according to government data.

"Looking forward, the strong momentum in the city's high-end housing market will probably extend through the end of this year amid ample supply,” Tang said. “Between six and eight new luxury developments are scheduled to roll out.”

She added, “As for the overall residential sales market, we also expect to see improvement from 2019 in terms of both transaction volume and average prices."