Buy the flat and we'll throw in the job to pay for it

Estate agents in China are using desperate measures to try to shift property in big cities hit worst by the slump

For young homebuyers facing the downturn, the offer from the Shanghai Sanxiang Co was unmissable. Buy a flat — and we’ll give you a job to go with it.

The developers, who have so far hired eight buyers, say the deal demonstrates their sense of social responsibility.

Others think it says as much about the fear gripping the market as house prices in China tumble after soaring growth. Other Shanghai companies are slashing as much as 30% from the price of flats.

British estate agents might wonder what the fuss is about. China’s urban house prices fell 0.4% in December; the first year-on-year decline since records were first published in 2005, but hardly disastrous in the global context.

Yet the headline rate disguises huge disparities within the market; while some cities in the center and west of China are still enjoying growth, the ‘first-tier’ cities such as Shanghai and Beijing have already been hit. Official estimates this week suggest that 20 million migrant workers have returned to the Chinese countryside from the big cities because of the economic downturn, reducing the demand for accommodation.
The British Guardian suggests the worst market of all is the export-led Pearl river delta; last month Shenzhen prices saw a drop of almost 18% year-on-year — and experts warn that things are going to get much worse.

‘Sellers were not willing to come to the realization that the market was changing, so they haven’t dropped their prices significantly yet — but that’s what we are starting to see in ’09 and I think we will see further drops.

‘I’m sure it’s going to be a difficult time for China over the next year, and therefore for the property market’ James MacDonald

The effects are beginning to be felt far beyond the glossy offices of developers: on empty building sites, in quiet factories, and in distant rural villages where families depend on the wages of migrant laborers. Tens of millions work in construction. Fewer house sales mean less demand for builders, materials, appliances and furniture — and a smaller chance of the government hitting its 8% growth target this year.

According to Macquarie Securities, commercial, industrial and residential construction rose by more than 32% in 2007 and another 9% between January and September last year. But in October it fell by more than 16%. This year it will shrink another 30%, the firm predicted.

Ma Jun, Deutsche Bank’s chief economist for China, has warned that falling property prices would contribute to the worst deflation in a decade.

Experts believe steep falls are inevitable because transaction volumes have plummeted, with a year-on-year drop in sales of about 20% for the first 11 months of last year. A report from the UK property consultancy DTZ Holdings this week said that unsold residential property in nine of China’s biggest cities now totaled 38m square metres.

James MacDonald, the Shanghai-based senior manager of China research for Savills, said: ‘Sellers were not willing to come to the realization that the market was changing, so they haven’t dropped their prices significantly yet — but that’s what we are starting to see in ’09 and I think we will see further drops.

‘I’m sure it’s going to be a difficult time for China over the next year, and therefore for the property market.’

It is in stark contrast to the halcyon days of 2007, when prices went through the roof — rising by as much as 60% in fashionable areas of central Shanghai.

Record growth and export values and chunky salary increases fueled the market, and rising prices themselves drew more buyers in. Some saw property as a sure-fire way of making money, while others wanted to buy a home while they could still afford one.

The government tried to rein back the market but the impact of its policies may have coincided with the start of the downturn, creating a bumpier landing than anticipated. More recently it has introduced measures to help purchasers, cutting property taxes and loosening mortgage policies for second-home buyers.

Zhang Haiqing, of the real estate research centre at Shanghai Centaline Property Consultants, said it would take time to feel their effects, adding: ‘In the short term, the downturn will last and the prices will even keep dropping. In the middle of this year, we believe the market will become better again.’

Savill’s MacDonald said he would ‘probably’ predict an upturn late this year or in early 2010, depending on the state of the global economy. But no one expects a return to the frenzy of 2007.

Developers draw faint hope from the likes of 40-year-old Li, a banker who splashed out on a second flat in Shanghai last month, in part because of the new incentives.

‘I thought about buying in August or September but I felt the price was higher than it should be, so I waited for a few months till it dropped another 10%. Then I figured it was the right time to buy,’ he said. ‘In Shenzhen, more people bought as an investment, but here people buy places to live in. In the long term I believe that Shanghai prices will go up again.’