Shanghai’s Developers Saw 56% Drop In Real Estate Transactions For New Homes Amid Coronavirus Outbreak

The coronavirus, or COVID-19, has brought most cities in China to a standstill—and the property market is no exception.

The number of real estate transactions for new construction homes in Shanghai from early February to early March decreased by 56% compared to the same time frame last year, or from 3,256 transactions to 1,413, according to data from Knight Frank. In the month before coronavirus became widespread, there were 3,982 property transactions in Shanghai.

(Note: Data for a specific month is typically released two months after the close of that calendar month, but sources say real estate data is coming in more slowly due to resources being diverted to monitor the spread of the virus and the Shanghai numbers are the only ones available at the moment.)

Developers have had to implement significant price incentives to entice buyers just to stay afloat.

Evergrande Group, the third largest developer in China, offered a 25% discount on its homes during February and a 22% discount through the end of March, which led to buyers putting down deposits on over 95,000 homes during the first week of the promotion. A deposit needs to only be 5,000 yuan (or $718) to secure the property.

In the case of prices falling significantly, Evergrande also committed to matching lower prices at least through the end of May.

Evergrande’s chairman, Hui Ka Yan, with an estimated net worth of $28 billion, is the third richest person in China.

Another developer, Fantasia Holdings Group Co., has lowered their deposit requirement to only 1,7777 yuan and will refund the deposit with interest if the buyer changes their mind within 30 days.

“Before the virus we had a forecast of [price growth] for first tier cities in China of about a 3% to 5% increase,” says Martin Wong, Knight Frank’s associate director for research and consultancy, Greater China, who spoke by phone from Hong Kong. “Then after the virus, because we saw transactions going down, we revised our forecast to a 0% to 2% increase. Temporarily prices will go down but the demand for first-tier cities will still be strong because of fundamentals.”

The first tier cities are Shanghai, Beijing, Chongqing and Tianjin, where Knight Frank has a strong presence. According to Wong the average price for homes in Shanghai is about 50,000 yuan to 60,000 yuan per square meter, rising to over 118,000 yuan per square meter for the luxury market.

“We look at first tier cities because they are more stable,” says Wong, also noting how rare it is for Knight Frank to change their forecasts during the year.

However, even though the first quarter has seen numbers plummet, Wong is optimistic the market will not see negative growth overall because of how quickly the Chinese government implements policies to influence market forces.

“It’s very different when you compare the market to the U.S. or t.he UK. In China the government always has some policy control in different times. If they see the price going up too much they try to suppress the price. If they just allow more of the ‘pie,’ or market mechanics, to control it the effect is too slow. You can’t see the immediate effect. So they impose buying restrictions—like in Shanghai every household is only allowed to buy two residential flats. You are not allowed to buy a third one, no matter how rich you are. It’s like a quota system.”

When it comes to existing homes, not new construction, 60% of the 70 largest cities were still seeing price increases, according to government data cited by Knight Frank. “But after February the situation will be reversed,” says Wong. Knight Frank predicts over 50% of major cities will see negative growth for the first quarter. “It will be a V-shaped trend for 2020,” summarizes Wong.

This post first appeared on Forbes.com. To see the original, click here.