Straits Times: Wed, Oct 26
BEIJING: Hundreds of home owners in Shanghai and other big Chinese cities are up in arms as developers slash prices for new buyers amid jitters that China's property market may be in for a sharp correction.
These home owners, who paid full price, are incensed that developers are now dangling discounts of 25 per cent or more for remaining units in their projects.
Some 400 people in Shanghai and Beijing have stormed developers' offices to demand a refund.
One violent crowd wrecked a showroom, while two protesters were detained by police for causing havoc.
The incidents have put the Chinese government in a tight spot as it tries to cool prices to make housing affordable for lower-income Chinese without agitating the middle class who have sunk much of their savings into real estate.
Since 2009, a combination of high land costs as well as demand from middle-income Chinese and speculators have pushed housing prices to record highs, far beyond the reach of many ordinary Chinese.
Owning property is not just the key aspiration of the masses but a social requirement for the younger generation of Chinese men, who are expected to provide a house before they can marry their girlfriends.
Fearful that a housing bubble would not only cause social unrest but destabilise the economy, Beijing introduced a slew of measures such as curbing loans, raising down payments and restricting multiple home purchases.
These moves are getting results.
Home prices in some suburbs of big cities like Shanghai, Shenzhen and Guangzhou have fallen as much as 50 per cent in recent months.
But now, fears are growing that prices may spiral downward more quickly than expected, leaving owners of projects like Longfor City in Shanghai among the first to feel aggrieved.
Last Saturday, some 300 people besieged and tore apart the showroom of developer Longfor, who had just cut prices from a peak of 18,500 yuan (S$3,690) per sq m to less than 14,000 yuan per sq m.
This translated to an immediate paper loss of some 450,000 yuan on a standard 100 sq m flat for earlier buyers.
'The developer is cheating us of our money!' one home owner surnamed Li reportedly yelled, as the crowd smashed furniture and clashed with police.
The same day, another group raised a ruckus over a 26 per cent cut to the 17,000 yuan per sq m price at the sales office of China Overseas Property Group Co in Shanghai's Pudong New Area.
In Beijing and Shenzhen, similar gatherings have taken place in recent weeks, with some developers pressured to fork out compensation for their projects' plunging values.
The developer of Jingmao International City in Beijing, for instance, disbursed almost 200 million yuan to early buyers after it was forced to discount the remaining houses.
But it still could not shake off its notoriety as the city's 'most depreciated compound' after its price per sq m dropped by some 7,000 yuan, or at least 24 per cent according to some estimates, in less than a year.
As the price-cutting spreads across the country, property analysts are warning that home owners will find it harder to claw any money back.
'Just because property buyers paid high prices at the top of the market (cycle) is not a good reason under the law to get a refund or compensation,' said Mr Zhang Shuxue, of Shun Jin property law firm in Shanghai. The weakening market will make it even harder for developers to accommodate any refunds, he noted.
Mr Zhang Kunyu of Beijing Centaline Property Consultants expects the general decline in Shanghai's housing prices - of much as 30 per cent - to trigger similar drops in other major cities.
'Prices are most likely going to keep dropping from now on, but nobody is sure how much yet,' he said.
Premier Wen Jiabao signalled that Beijing is still wary of an overheated market. He stressed last Saturday that local governments should continue to enforce property-buying curbs.
China tightened restrictions on second home purchases in 40 major cities as well as smaller ones earlier this year.
Still, analysts believe the authorities will be careful not tighten too much, to avoid the risk of a market collapse like in 2008, when prices in some cities fell as much 65 per cent.
'China has a growing group of middle-class taxpayers who have shown through the recent demonstrations that they can cause quite a lot of trouble if property values drop too much,' said Beijing real estate analyst Zhang Ying.
'The property sector is also a key pillar of the Chinese economy, so Beijing will be careful to support prices.'
Martin Koh/ Sherry Tang