Two years ago, Bill Li, a café owner in Shenzhen, received an unusual proposal. His friend, a real estate agent, introduced him to a woman who did not have a local hukou — a form of government ID that is essential for anyone hoping to buy a property in the city — and was willing to pay Rmb30,000 ($4,300) to marry someone who did.

“I started to realise that it can be so profitable to buy a house in Shenzhen that people even set up fake marriages,” he said.

Mr Li went ahead with the marriage and, a year later, after borrowing from banks and finance companies, he bought a property of his own.

“With the same money that it costs to open a café, maybe I could earn much more,” he said. “Prices were already high, but certainly hadn’t gone up enough.”

Even in a country where an ever-expanding middle class has stoked a mania for bricks and mortar, Shenzhen stands out. Prices of “second-hand” residential buildings have risen 78 per cent since 2015 — more than any other big city in China — while new home prices are up 56 per cent over that time.

Shenzhen has benefited from its status as China’s leading city for technology, as well as shortages of land. But it also embodies an aspect of the country’s housing market that has only recently emerged: its resilience to the coronavirus pandemic.

Official figures from 70 of the biggest Chinese cities showed house prices again rising in July, albeit at a slightly slower rate than in June. Prices for new homes were up 4.8 per cent compared with the same period last year, according to Reuters calculations based on the data, while Shenzhen added 5.9 per cent. 

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“Globally it’s [property] slowing down, but for China we are still seeing stable growth,” said Martin Wong at Knight Frank, which forecasts prices in China’s biggest cities will rise 3 per cent to 5 per cent this year.

“Everyone is still trying to buy if they have the ability to buy,” he added. “That’s the basic mechanics of the property market in China.”

He points to long-term government support for house prices in the country, including overarching policies promoting urbanisation.

Michael Wang, a businessman, said he was the richest person in his village in south China, where he owns several factories.

Last year, in anticipation of official support, he bought two pre-constructed properties in Shenzhen for Rmb95,000 per square metre. That summer, the government unveiled a series of measures to transform Shenzhen into a model city. Now, he says, the price of his apartments have more than doubled, although construction has not yet been completed.

“It’s more lucrative to speculate in real estate than drug dealing,” he said. “Shenzhen’s property market will boom when the state wants it to go up, and it is going to shake when the state wants it to shake.”

Mr Wang suggested that the government was the sector’s biggest beneficiary, through sales of land and taxation. Construction is an important area of employment in China, and investment in real estate, as well as infrastructure, has risen this year.

A shortage of available land has helped boost Shenzhen’s property prices © Kim Kyung-Hoon/Reuters

Loose credit conditions, which have been eased further as a result of coronavirus, have also supported prices. Estate agents in Shenzhen said it was common for purchases to be supported through consumer loans or credit cards.

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There are signs that other policies meant to mitigate the coronavirus fallout have boosted property prices. He Shuxin, an agent in the city, said she had helped her clients apply for business loans, designed specifically for entrepreneurs during the crisis. They were able to borrow more than Rmb2m from the bank through a shell company to buy properties.

The risks of ever-increasing prices have long been recognised at a national level. Xi Jinping, China’s president, stated in 2017 that houses should be for living in, not for speculation.

Dramatic measures to cool the market were implemented in Shenzhen last month, where the local government announced that buyers needed to hold a hukou for three years and pay three years’ worth of taxes in the city before buying a house. They also restricted purchases from divorced individuals if the couple already owned two or more properties.

Those policies have had an effect but prices are still rising, said agents and bankers. Continued demand persists nationwide for property and stocks, in both cases fuelled by credit and a belief in government support. It also stands in contrast to a notable fall in retail spending in China this year that persisted in July.

For Mr Li, who bought before coronavirus emerged, that fall in consumption indirectly harmed his property investment. His café was hit hard by the pandemic, and he struggled to pay back the various loans he took on to buy it.

He stopped eating out at restaurants to save money but was eventually forced to sell the property cheaply to clear his debts. “I did not make any money,” he said. “I was not living as a normal person.”

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Via Financial Times