Shenzhen’s Qianhai losing its real estate shine could be a good thing

Kaiyun Mansion (开云府), in Chiwan in Shenzhen’s Qianhai area, is a new development launched in October last year. Despite its good location next to the mountains and waters, with two metro stations and an integrated commercial complex nearby, sales have been disappointing.

According to public information on Shenzhen real estate information platforms, only eight of the 413 units in Kaiyun Mansion have been sold as of June this year, with 98% of units remaining.

A salesperson surnamed Hu told Lianhe Zaobao that the developer had offered discounts on various unit types in May, slashing prices from around 90,000 RMB (US$12,373) to 68,000 RMB per square metre. Even with the offer of home appliance gift packages and waived management fees, the units have not been moving.

The Chinese real estate industry has been in a slump in recent years due to policies such as the “three red lines” restricting property financing and purchases, leading to a decline in sales volume and prices in various regions. 

Second-hand housing prices have also taken a dive. Known as the “top city for property flipping”, Shenzhen previously saw big price jumps, leading to fiercer drops now.

Figures from Leyoujia.com show that the average transaction price of second-hand houses in Shenzhen last year was around 65,000 RMB per square metre, a 12% year-on-year decrease. This also marked a 22% drop from the historical high of 83,000 RMB per square metre in 2021. The decline in Qianhai is even more pronounced, with some projects even losing money.

For example, the price of a 66-square-metre two-bedroom unit in the widely popular Nuode Holiday Garden (诺德假日花园) in Qianhai has fallen from 11.49 million RMB in 2021 to 5.9 million RMB in January this year, and 174,100 RMB to 89,400 RMB per square metre, a drop of 56.5% over three years.

Over the past decade, Qianhai has been a key special economic zone for Shenzhen, as it aims to leverage its proximity to Hong Kong to build a new city centre in western Shenzhen, becoming an economic, trade and transportation hub in the Guangdong-Hong Kong-Macau Greater Bay Area. 

As a “special zone within a special zone”, Qianhai is a national strategic platform highly valued by China’s top leaders. President Xi Jinping visited three times in the past ten years, besides personally planning, setting up and promoting its development.

This ambitious plan was further expanded in 2021, from the initial three-bay area (Mawan, Qianwan and Guiwan) to include Nanshan and Bao’an districts, with the area increasing by approximately seven times.

After the Qianhai concept was launched, the area became an investment Mecca, with many investors swarming in and driving up property prices through their flipping. In 2021, Shenzhen’s Housing and Construction Bureau and other departments jointly investigated the largest property speculation group Shenfangli, which focused on Qianhai.

Lin Yiru, a real estate agent with over 15 years of experience in Shenzhen, pointed out that while Shenzhen’s economic aggregate can rival that of other first-tier cities, its housing market is far less resilient than that of Beijing, Shanghai and Guangzhou.

As a migrant city, Shenzhen has a home ownership rate of just 23.7%, the lowest among first-tier cities. Lin assessed that most housing in Shenzhen is held by a small number of people, and these properties are being used for investment rather than residential purposes.

He said that when the economic environment is poor, investors may be forced to sell their properties once their funding is cut. “As a non-mature area, Qianhai has more room for price fluctuations, and the decline is naturally more significant when the market is reversed,” he added.

Lin pointed out that due to the speculative nature of Qianhai real estate, few people actually live there, leading to underdeveloped facilities in the surrounding area. Many enterprises merely use Qianhai as a registered address to enjoy policy benefits, leading to high office vacancy rates. At the same time, the small employed population also directly impacts housing demand. 

Data from Cushman & Wakefield showed that the vacancy rate of Qianhai office buildings reached 38.5% in the first quarter of the year, the highest among Shenzhen business districts.

Some analysts believe that Qianhai’s slow development reflects limitations in China’s special economic zone-driven growth model. As the country’s economy slows, it may be even more difficult to achieve Qianhai’s desired development goals.

The area’s sluggish property market more so reflects the objective reality that Shenzhen is unable to meet its ambitious development plan.

When I visited Qianhai in late June, I discovered that even in the relatively developed Guiwan area, both shopping malls and office buildings see low footfall on weekdays, appearing particularly quiet. There are few vehicles on the wide roads in Qianwan and Mawan, with many sections still under construction.

Wang Huanxin, general manager of the western area at Centaline Property Agency (Shenzhen), pointed out in an interview that each district in Qianhai has its own unique industrial positioning: Guiwan is the financial centre, Qianwan the information services hub, and Mawan the logistics centre. 

However, the functions of these industries could not be fully realised due to the Covid-19 pandemic and China’s economic downturn, as well as international situations such as the Russia-Ukraine war and the China-US trade war.

Qianhai’s present situation is a reflection of China’s current economic landscape. But industry insiders believe that with its favourable location and support measures, Qianhai is poised to come out of the doldrums once the overall economic environment improves.

Wang said that when an industry encounters difficulties, enterprises’ orders and individuals’ incomes decline, leading to reduced demand for surrounding properties. But once the economy improves and people’s incomes return to a certain level, Qianhai’s property market will catch up.

“Qianhai boasts an exceptional strategic and geographical advantage that cannot be replicated elsewhere. History shows that the worse the decline, the better the rebound,” he said.

Meanwhile, Song Ding, a researcher at China (Shenzhen) Development Institute, pointed out in an interview that Qianhai property prices fell even more during China’s economic downturn, which allows the property market to return to rationality according to the laws of the market.

He said, “What’s falling now is what should never have gone up in the first place, and the vast majority of it is bubble costs.”

Song pointed out that while property bubbles will certainly feel like birth pangs in the short term, this will do more good than harm to the strategic development of Qianhai and the western part of Shenzhen in the long term. The fall in prices will help deflate bubbles in Qianhai’s housing market and restore it to a normal level, making it more conducive to attracting a new and more substantial round of investments in Qianhai.

But he acknowledged that this takes time because many investors have suffered significant losses due to the recent property market crash and are likely to remain cautious about increasing their investments again.

Song also stressed that be it the central government’s policy initiatives or Shenzhen’s strategic industrial layout in areas such as technology and finance, they are all concentrated in the western part of the city. There is a huge accumulation of talent, capital and technology there.

“This development trend is unshakeable. Even though Qianhai’s property market is plummeting now, it is not beyond repair and will not affect its basic positioning,” he noted. 

As for how long it will take for Qianhai to recover, interviewed experts and academics believe that it would depend on whether the complex and severe environment at home and abroad will improve, and whether China can effectively implement the strategic adjustment of the “dual circulation” development strategy and seize the initiative in development.

Wang said that everything has a recovery cycle, including the economy and people’s confidence. He is optimistic that the fulfilment of Qianhai’s development will happen sooner or later.

This article was first published in Lianhe Zaobao as “深圳前海房价大跌 特区光环退却？”.

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