Turning point in housing market looms amid discounts

Updated: 2011-10-28 10:32


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BEIJING -- When long-awaited housing price cuts finally came to the Chinese market, the immediate response was not a warm welcome. Instead, media reports have featured protests from homeowners in cities where prices dropped right after they made purchases.

Hundreds of homeowners stormed into the sales office of a property project developed by the Longfor Company in Shanghai last week to demand compensation, as prices have dropped by as much as 30 percent since they signed their purchase contracts.

The protests followed a promotional policy instituted by the developer starting Oct 15. The policy offers buyers a total discount of 300,000 yuan ($47,200) if the owner spends 20,000 yuan on a membership at a designated website. This policy could bring down the average price per square meter by 20 to 30 percent.

A woman surnamed Kong who bought a house before the discount was created was irritated.

"My house is to be delivered in March and I haven't even gotten the key yet. But its price has already dropped," she said.

Similar episodes have been reported in the cities of Beijing and Hangzhou, where housing developers, pressed by a financial crunch and a sales slump, have moved to spur sales.

While the price drops have sparked disputes among people who have already purchased their homes, many see it as a sign that China's housing bubble will gradually deflate and that the market will see a turning point soon.

Transactions plunge, inventories pile

China's government has created a series of policies to curb the runaway housing market, including purchase limits, higher down payments, the introduction of a property tax in some cities and the construction of low-income housing projects.

In light of the policies, many potential buyers opted to wait and see what would happen in the housing market, which led to a significant decline in the market this year. The market even suffered a slide during the week-long National Day holiday, which is typically a boom week for the sector.

Official statistics showed that only 1,039 housing units were sold in Beijing during the holiday, including 908 new homes and 131 second-hand houses, down 22.8 percent over the same period last year.

Shanghai also saw a significant slump in home sales during the holiday. Daily housing sales in the city stood at about 100 units, while in the large cities of Guangzhou and Hangzhou, sales figures remained at only two digits.

The plunge in transactions has resulted in skyrocketing housing inventories, prompting real estate companies to take action.

According to statistics from the Beijing Real Estate Trading Management website, the city added 16,196 new housing units from Sept 1 to Oct 25, only ten percent of which were sold.

As of Oct 24, Beijing still has 117,500 new housing units waiting to be sold. Even without additional units, it will take at least 20 months to "digest" them, according to the website.

WorldUnion Property Consultancy Co Ltd predicted that housing inventories will come to a head at the end of this year or early next year.

Property developers have already felt the bite. According to statistics from Wind Information Co Ltd, a leading Chinese financial service provider, the inventories of 136 A-share listed real estate companies accounted for 61.82 percent of the companies' total assets in the first half of the year, while the ratio during the same period last year was below 60 percent.

Song Huiyong, a research director with Shanghai Centaline Property Consultants, said that the recent discount wave is a sign that developers are anxious to get their cash back quickly.

"Facing a squeeze, small- and medium-sized developers have to resort to price-cutting promotion," said Yang Shaofeng, managing director of Beijing Lianda Sifang Realty Co.

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