Shenzhen’s residential property market posted one of the strongest rebounds among Chinese cities in 2Q15. According to JLL’s preliminary data, new home prices in Shenzhen’s high-end residential property market grew by 7.5% during the quarter with asking prices in some projects increasing by as much as 30%. In the other Tier I cities, housing prices grew by only 2% in Beijing and 2.6% in Shanghai while declining by 0.5% in Guangzhou.

The surprisingly strong rebound in housing prices was backed by a significant rise in sales volume. Through the first five months of 2015, sales volumes in Shenzhen’s residential market were double the amount recorded over the same period a year earlier. In comparison, sales volumes increased by 44.2% in Shanghai, 30.6% in Beijing and just 15.5% in Guangzhou.

The recovery in housing prices across the country has largely been attributed to the further relaxation of Home Purchase Restrictions (HPRs). However, there is also anecdotal evidence to suggest that the positive wealth effect brought about by surging domestic stock markets has played a role and may be one of the reasons why Shenzhen has so far outperformed markets in other cities.

According to data from China Securities Depository and Clearing Company, residents from Guangdong opened the most new stock trading accounts in all of China in 2014, with Shenzhen residents accounting for 50% of all new accounts opened within Guangdong province. Given the strong historic relationship between the performance of the domestic stock markets and Shenzhen’s residential property market, it is easy to see how the positive wealth effect may have contributed to the recent surge in sales volume and prices.

With China’s stock markets now starting to cool, after having more than doubled over the past year, the positive wealth effect brought to the housing market should start to moderate. While this may dampen growth moving forward, it is unlikely to reverse the burgeoning recovery in the housing market. In fact, the fundamentals underpinning the Shenzhen’s residential property market remain strong. Moving forward, buying demand will not only be supported by the relaxation of HPRs, which is already unleashing pent-up demand onto the market, but also from the strong growth of Shenzhen’s office market. The growth of the office market is drawing more professionals to the city and lending support to the residential leasing market. As a result, residential properties are being viewed as an attractive investment option.

Source: CREIS, Yahoo Finance

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