An aerial view of Wenzhou. (Photo/Xinhua)
The city of Wenzhou in southeastern Zhejiang province may have led China's real estate boom in recent years, but it is now also leading the way in the country's free-falling housing prices, with property values nearly halving over the last two years, reports China Business Focus, a monthly magazine published in Shanghai and Sydney.
Property prices in Wenzhou, which had been the highest among China's second and third-tier cities in recent years, have begun falling rapidly since the Chinese government last year implemented measures to cool the the domestic real estate market. In the third quarter of 2012, average prices in Wenzhou fell by more than 18% year-on-year, the largest drop of any city in the country.
Large developers are said to be responding to the sluggish demand by lowering prices and the stepping up construction, which has forced smaller developers to follow suit.
In 2010, property prices at Wenzhou's Lucheng Square had risen to 70,000-100,000 yuan (US$11,200-US$16,000) per square meter from 43,800 yuan (US$7,000) per square meter in 2008. Since the beginning of 2012, however, prices have crashed, with the value of space at Jin Yu Garden in Lucheng Square falling by more than 50%.
According to market research data from Wenzhou University, between 2006 and 2011, commercial property prices in the city more than quadrupled from 8,045 yuan (US$1,290) per square meter to 36,674 yuan (US$5,880) per square meter. But now, many smaller-sized real agencies in the area have been forced to shut down, and many prime properties remain vacant after prices fell from 40,000-50,000 yuan (US$6,400-US$8,000) per square meter to just over 20,000 yuan (US$3,200) per square meter, according to a local real estate agent.
A property manager surnamed Chen told the magazine that Wenzhou property prices had indeed risen rapidly over the past decade, from an average of around 4,500 yuan (US$720) per square meter to 45,000 yuan (US$7,200) per square meter, with some individual properties rising as high as 100,000 yuan (US$16,000) per square meter. But the market has taken a dive since the government implemented its real estate market controls, limiting purchases and the quality to properties, Chen said, adding that it is like being stabbed by two separate knives.
Chen said between May and November, his agency recorded around a thousand settlements per month, down from 1,200-1,500 before the controls came into effect, although conditions are still better than last year when the average was just 400 a month.
China's worsening credit crisis and the struggling global economy has also been a major factor, as 2012 has seen a significant increase in bad debts.
At a discussion forum last month, Wenzhou Municipal Construction Committee Communist Party secretary Zhou Shouquan said the city government has three goals as part of its strategy to make housing more affordable for locals. The first is for high-end housing prices to fall to 25,000 yuan (US$4,000) per square meter, the second is for mid-range property prices to fall to 20,000 yuan (US$3,200) per square meter, and the third is for ordinary housing prices to fall to 15,000 yuan (US$2,400) per square meter.
Confidence in Wenzhou remains relatively high, however, as the central government is said to be planning to transform the city into a major financial hub for southeastern China. A number of major real estate enterprises have also entered Wenzhou, including Wantong Real Estate, which has reportedly invested more than 10 billion yuan (US$1.6 billion) in the city.
Chen said Wenzhou is a place with ample land and relatively few people, meaning that the city's housing crisis should be temporary and that prices should be facing an upward trajectory over the medium to long term.
Zhou Shouquan 周守權