D.D's Club

Bust follows a doubling of prices in past three years; recent buyers sue to get money back. They are all hoping for the best!

Shanghai’s housing slump is only going to worsen and imperil a significant part of the Chinese economy, says Andy Xie, Morgan Stanley’s chief Asia economist in Hong Kong.

Shanghai’s housing bust comes after a doubling of prices in the previous three years, a run-up fueled by massive speculation.

With China’s economy booming and Shanghai at the center of worldwide attention, investors from Hong Kong, Taiwan and elsewhere were buying as fast as buildings were going up. At least 30 percent to 40 percent of homes sold were bought by speculators, says Zhang Zhijie, a real estate analyst at Soufun.com Academy, a research group in Shanghai.

“Ordinary people had no option but to follow the trend,” Zhang said. “Worrying that prices would be even more unaffordable tomorrow, many of them borrowed from relatives and banks to buy as soon as possible.”For Wang Suxian, 35, the tale of two lines illustrates how the bubble has burst.

When home prices were at the tail end of the boom in March 2005, Wang hired two migrant workers to stand in line for a chance to buy units in what the developer said was modeled after an apartment community on New York’s Park Avenue.

The workers waited 72 hours but Wang was thrilled to come away with two apartments, one for $110,000, about the average price for a new home in Shanghai, and another for $170,000. They were among Wang’s four investment properties.

And for a short period, Wang believed she was raking in hundreds of dollars a day for doing nothing, as property prices in the city kept soaring.

But today, prices at the apartment complex have fallen by one-third, and the lines of frenzied buyers are gone. Wang is among dozens who are fighting the developer to take the apartments back.

On a recent morning, she stood in a line herself with about 40 other buyers outside the builder’s headquarters, demanding that it negotiate a deal to return their money. The company, Da Hua Group, invited Wang and other homeowners inside, served them hot tea, then told them to forget it.

“I think it’ll take at least three years before the property market becomes healthy again,” Zhu Delin, a professor of finance at Shanghai University and former head of the Shanghai Banking Association, predicted.

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