Home prices sizzle in China's Silicon Valley even as economy slows

By Clare Jim HONG KONG (Reuters) - A stream of weak manufacturing data, the fall in the yuan and a stock market rout have painted a gloomy picture of the world's second largest economy over the past few months. But for the property market in China's boomtown of Shenzhen, thing's couldn't be better. Real estate prices in China's answer to Silicon Valley rose by almost a third in August from the same month a year-ago, a further climb from the nearly 24 percent year-on-year increase in July, official data showed, making it the country's hottest property market by far. The gain becomes even more stark when compared to the 2.3 percent year-on-year decline in real estate prices across the whole country, but also highlights the factors unique to Shenzhen that are driving the boom: a scarcity of land in this southern city, few unsold homes and strong demand from executives from companies including Tencent Holdings Ltd and Alibaba Group Holding Ltd coming to live in the country's largest technology hub. "Shenzhen's economic output is still doing well... despite a slowdown in the broader nation," said Andy Lin, research director for China markets at investment firm Hopefluent Group Holdings. "Supply constraint is also a big factor that drives home prices." China's home prices rose for a fourth consecutive month in August, offering hope that the ailing property sector is becoming less of a drag on the slowing economy. Analysts, however, do not expect a full-blown turnaround any time soon, as a huge oversupply of unsold homes discourages new construction and investment in all but the biggest cities. The stock market rout, which saw Chinese shares fall by almost a third in July, burning many investors, is also likely to depress demand for property. But even though stock prices in Shenzhen have fallen by 27 percent in July and August, demand for property remains strong largely due to the lack of supply of both apartments and land: the city sold only one plot of land so far this year, compared to the 120 plots sold in Beijing, Shanghai and Guangzhou, data by real estate researchers China Index Academy showed. Analysts however, say the picture is changing slightly. Hopefluent's Lin expects the official price index to ease slightly towards the end of the year as buyers seek more affordable small to medium sized apartments, reluctant to splash out on luxury dwellings like the $6.3 million flat at a seafront condominium amid the slowing economy. Any substantial drop in home prices, however, is off the cards, he added, as sellers are reluctant to ask for less in a market where demand is expected to always outstrip supply. New home buyer Tina Dong is resigned to the high property prices in Shenzhen. She and her husband, a former Tencent employee who now runs his own start-up, bought a suburban property in July for 2.2 million yuan ($346,135) but they hope they can eventually afford a place closer to the city centre. "Prices of homes and goods tend to be high in all major cities, so I believe property prices will continue to rise," said Dong. "I hope after a couple more years when we earn more money, we will be able to move to the downtown area." (Editing by Miral Fahmy)