World's real estate rut

Shenzhen in Southern China has been a potent symbol of the country's rapid economic growth over the past three decades. Now it is also home to some of the sharpest effects of the country's economic slowdown, including, according to a report in state media on the weekend, the biggest drop in house prices in China, a stunning 18% fall compared with last year.

The decline is part of a wider downturn that saw house prices across China fall for the first time on record.

It is export-focused centres on the country's east coast such as Shenzhen that have been worst affected.

In 1979, before it began on the path toward becoming a bustling city of eight million people, Shenzhen was little more than a fishing village whose inhabitants mostly lived in small homes down narrow alleyways. But that all changed after Deng Xiaoping designated the city China's first "special economic zone" three decades ago.

The city, which neighbours Hong Kong, boomed on the back of a rapidly growing manufacturing sector that made goods for export around the world. Migrant workers flooded into the city, and a new and growing middle- class began to emerge too, leading to a massive demand for more housing. Shenzhen was inundated by cranes and tower blocks, and along with others cities across China, it saw some of the fastest house price increases in the world, with houses and apartments in some areas doubling in value in just a few years.

But the Chinese economy has been slowing as the financial crisis sweeps through international trade, and property prices across much of China are now officially in decline.

Across the country, home prices fell by 0.4% compared with last year in 70 of the largest Chinese cities, state media reported. The drop, published by the National Development and Reform Commission and National Bureau of Statistics, was the first decline since Beijing began issuing the figure in 2005.

Shenzhen's 18% fall earns the dubious honour of being the worst-hit place in the entire country. But property prices in Nanjing, Chongqing and Guangzhou also all fell sharply, down by more than 5% from last year.

Economists were expecting weak housing figures to follow declining exports and slowing GDP growth.

"Housing-related construction activity has slowed sharply in recent months," said UBS economist Tao Wang in a report last week. The downturn will have an impact on employment figures, the UBS economist said.

"Anecdotal evidence suggests that many construction workers have already been sent home. We could see five to 10 million construction workers without a job [in the next fewmonths]." Beijing has already cut taxes on real estate transactions to get the housing market up and running again. Local authorities in some provinces have also made efforts to boost the property market, including measures to encourage banks to makemore home loans.

The Chinese government has also committed to a 4-trillion yuan (US$586-billion) stimulus plan to get the country's economy back on track.

China's GDP growth slowed to an official 9% in the first three quarters of 2008, compared with double digit growth for the several years previously.

Exports and imports have each fallen too in recent months.

Beijing's stimulus plan will probably not provide any relief this year, one of the country's top economists said on Saturday.

But, "the policies' impact on economic growth would be obvious in 2010," said Fan Jianping, chief economist of the State Information Centre, in a report by the state-run Xinhua News agency.

(prepared by Duncan Mavin, Financial Post)