Housing slump hits Shanghai owners

By Chris Hogg BBC News, Shanghai

In Britain and the United States the fall in house prices has been one of the main reasons many people are feeling poorer in the financial downturn.

Developers are continuing to turn out flats in the city of Shanghai

In China homeowners are feeling the pinch too. House prices have been falling here since last summer.

Some analysts warn that in big cities like Shanghai they could fall by 50% from their peak.

But for many Chinese homeowners this is the very first time they have ever experienced the pressures of negative equity and falling prices, so young is the market.

In a Shanghai suburb, young saleswoman Yu Bei shows visitors around a new apartment.

She has discarded her hard hat, and her shoes are wrapped in plastic bags. Inside the newly-decorated apartment it is immaculate, but outside it is a building site.

Eleven towers are under construction on this housing estate. Thirty-six have been finished already.

It appears to be a massive undertaking, but these flats are just some of the 30 million new apartments being built in China at the moment.

It is a mass market, but the prices are not affordable for the masses.

"The square metre price in most cities is about three times the monthly salary," says Andy Tsieh, a freelance economist. "It's too high by international standards. In Shanghai it's four times."

He argues that with such a high price it is impossible to have a mass market. The volume of supply is simply too great at the moment.

"Developers have to cut prices," he says, "and they don't have enough room to do that in the current economic climate."

Job offers

On one project, developers came up with an enterprising solution to try to get sales moving. For a month they promised anyone who bought one of their apartments a job.

Zhang Tao's company offered jobs along with their flats

Zhang Tao, the firm's deputy general manager, says it was a genuine offer.

"If you bought an apartment during that period, and you wanted a job we would offer you one," he explained.

"There were conditions of course, you had to be a suitable applicant. But we had all sorts of jobs, high-end and low-end. We offered the job to the person who bought the apartment, or to his friends and relatives, so that way the 'offer' could be guaranteed."

Zhang Tao insists that his company's unusual "buy a place and work for us" offer was a clever marketing ruse - not a reflection of how bad the market is right now. In truth it is hard to tell though.

The problem is, there are very few transactions taking place, especially in what is known as the secondary market, where people are selling homes they already own.

Wang Yi Qing bought her apartment as an investment property last October not far off the peak of the market.

Wang Yi Qing ha not been able to rent out her investment property

It is in an industrial area where lots of people have lost their jobs recently. That has made it hard to rent out, so it is empty. She would prefer to sell it but she would lose a lot of money.

"It's huge pressure for our generation," she complained. "I'm really feeling it."

She does not know what she is going to do next.

"It's hard to predict the future," she said. "When prices were high people thought they would go up and up, and now people think they will keep falling. The market's not at the bottom yet. It's really difficult to tell what's going to happen."

More pain

In mature markets people are used to the cycles of property prices. Here it is different.

The market is quite immature, so women like Miss Wang are dealing with these pressures for the first time. She is the first person in her family ever to own property.

Property prices rose dramatically in Shanghai in 2007 but are now falling

James McDonald from the real estate firm Savilles' Shanghai office says that lack of experience makes the current situation deeply unsettling for those trying to work out whether to get in to the market.

"Chinese citizens haven't seen anything like this before. In Shanghai we saw property prices rising 40-50% in 2007. We are looking at a correction for those times. People do not know where the true value of certain properties are so they just hold off buying properties at the moment."

They are still building new homes across this city, even as prices continue to fall.

Building new homes is labour intensive and so creates lots of jobs - more important now than ever as the economy slows here. But China does not need a bigger property market. It needs a healthier property market.

Incomes will have to rise here considerably, and prices will have to fall a long way before homes become more affordable, before the property market here starts to look more like that in other countries.

That suggests there will be more pain to come for developers, and for those families trying to find buyers for their homes in the months to come.