Economy

Market-cooling measures have desired effect

By Shi Jing (China Daily)
Updated: 2010-05-07 07:22

SHANGHAI - The introduction of various market-cooling measures by the central government over the past few weeks seems to have stunned speculators, causing many potential homebuyers to hold off on taking the plunge of buying a house.

And some developers, saddled with heavy debt, have reduced prices to try to woo back buyers.

EverGrande Real Estate, a major developer, is reportedly offering a 15 percent discount to push sales of apartments in one of its housing developments in Guangzhou. Meanwhile, transactions in Shanghai dropped as much as 80 percent by early May.

Fearing further discounts could trigger a price avalanche, several Shanghai developers are calling on colleagues in the industry to agree to a freeze on price cutting.

Such "a plot", as a Shanghai lawyer called it, is in breach of the Anti-monopoly Law, which, like the anti-trust law in the United States, is designed to prevent any form of collusion on fixing market prices.

"Once an alliance of the property moguls is formed and reaches a certain scale, it can be construed to be an infringement of the Anti-monopoly Law," said Yang Yuyi, a lawyer from Shanghai Dongxin Law Firm.

"The law is very specific about what constitutes collusion and the control it has on the operation of a market," he said.

Some property agents in Shanghai said they did not believe such an alliance was possible, because of the vastly different financial needs among the major developers. "It is impossible to bind all (developers) to a single price agreement," said an analyst at a global real estate agency.

The property agents said they suspect some developers deliberately leaked the so-called "plot" to the media to try to goad some buyers back into the market. "I don't believe that these developers are unaware of the Anti-monopoly Law," the analyst said. "It's not uncommon for some people in our business to talk up the market in uncertain times," he added.

"We have no view on this issue," declared a senior executive of the Shanghai office of the Shenzhen-based developer Vanke. Such talk about forming a property cartel in Shanghai "sounded too extreme to be taken seriously", she said.

Wu Yun, an associate professor at the Shanghai International Studies Institute, bought a second-hand apartment around the Baoshan District for 27,500 yuan early this year. As she expects house prices to fall at the end of the year, she plans on holding off buying another apartment for her mother.

"That Baoshan developers are forming a price rally is just a temporary resolution. The funds now at their disposal are still adequate for them to last some time, though I am sure house prices will go down by about 30 percent later this year. And I will wait until then to prevent falling victim to the rocketing house prices," said Wu.

Xue Jianxiong, a senior analyst of E-House China, said it was not possible for a price alliance to be formed.

"The ever-rising house prices in Baoshan have, to some extent, led to the rise of property prices in Shanghai as a whole. Developers there are very worried that their houses will face a huge slide in the near future. Therefore, they may have gathered together to discuss how to deal with it. They will by no means reach an agreement to form a price alliance," said Xue.

"The rumor is spread for people who are worried that the property market will plummet. As I see it, prices will not go down that significantly, for there is always rigid demand," Xue added.