To me, that’s “not buying a home in Shenzhen”.
How much did I gain? almost as much as $1mn.
Well, if I bought a 10-20mn rmb home in 2021, with 30-50% down payment, which was the plan, I would have invested 3-10mn rmb.
Over the past 3 years, I could have lost 3-6mn rmb or 60-100% of the equity value, assuming home prices dropped by 30%. In fact, I have seen examples of home price dropped by 66% in 2024 compared with 2021.
This doesn’t include the interest expenses, brokerage fees, and opportunity costs which can be at 2.5% deposit rate times 3 years for rmb.
What surprised me in 2021?
The low rental yield surprised me at first – easily 1%.
The place I got in 2021 shall cost 10mn rmb to purchase, but renting costs 11k rmb / month, which was 1.3% rental yield.
Then I realized housing price in SZ is comparable to some of the most expensive cities in the world. (ASP in certain part of SZ can be easily 150k+ rmb per sqm, which is equivalent to $2.1k / sqft)
$2k / sqft is insane.
Even someone assumes (subtract) the savings on insurance, tax, etc., (say 2-3% a year) – the price is high ($1k / sqft).
The simplified math works like this – take a $1mn home as an example, assuming a 2.5% discount rate, and assuming the cost of owning is 2.5% per year, the savings on cost of owning is $1mn.
Therefore, you could cut the China’s listing price by half and compare. But still expensive. This also assumes that you don’t pay property tax in China – which is true is most cities and especially for your first home or smaller homes.
Note that if US raises interest rate, that value of this “saving” can be immediately cut – e.g. cut by 50% if discount rate increases to 5%. See below.
Home price to income level is also concerning. I am sure there are many rich business owners in SZ, but wages are not that high. High-paying jobs are not common, and SZ was not as resilient as other cities in earning wages.
Big companies like Tencent, Vanke shall face pressure in the coming years. [Gaming was called spiritual opium in 2021, and Vanke is a residential real estate developer] Cross-border e-commerce was hot, but competition quickly rose (especially from TEMU), plus global consumption dropped as Ukraine war broke out and Fed increased interest rate.
SZ also have strict requirement to purchase homes. You need to have 3 years of social insurance payment to purchase a “residential property”. You could purchase an “apartment”, which doesn’t need social insurance requirement but that can drop even more in prices due to oversupply.
[“residential property” and “apartment” are two different types of property that are treated differently in property rights, in taxes, in education resources, in electricity costs, etc.; rental price could be the similar, but “residential property” are more expensive to purchase]
