Models of the Champs-Elysees project, having been pushed over by angry home buyers in Hangzhou on February 22 Photo: IC
The sales office for the Champs-Elysees residential development in Hangzhou, capital of East China's Zhejiang Province was crowded with people on Thursday afternoon.
Several hundred prospective home buyers queued up, following news that the company had decided to cut the prices of apartments in the development.
On the other side of the office, some people who had already bought homes in Champs-Elysees at higher prices were angrily demanding compensation from the property developer.
The Champs-Elysees project, named after a famous avenue in Paris, has attracted nationwide attention, with its price cut seen as a sign of a cooling trend in China's property market.
Property developer DoThink Group sparked a property price war in Hangzhou on February 18, after it announced a 12.2 percent price cut at its North Sea Park project to 15,800 yuan ($2,592) per square meter.
The developer said the price cut was intended to clear inventory and boost its capital. Zhejiang Guanghong Real Estate Development Co, which owns the Champs-Elysees project nearby, soon followed suit and cut its average home price to 13,800 yuan per square meter from 17,200 yuan previously
Guanghong's move triggered protests from customers who had bought apartments in Champs-Elysees before the price cut. Around 70 of them gathered in the sales office on February 21 and asked for compensation. Some angry buyers pushed over models of the project in the office.
A house buyer surnamed Pan claimed she bought an apartment for 19,300 yuan per square meter several hours before the price cut, which meant that she missed out on a saving of about 500,000 yuan, local media reports said.
The price cut also attracted lots of prospective home buyers.
"If you are interested in the property you'd better hurry up, as about 280 people have already put down deposits," Zhang Xiaojian, a salesman for the Champs-Elysees project, told the Global Times Tuesday.
Zhang said prospective home buyers need to pay 20,000 yuan as a deposit, and they can then participate in a lottery for purchasing an apartment. The deposit will be refunded for those who don't succeed in the lottery.
The price of some apartments in the development rose slightly to 14,000 yuan per square meter due to stronger-than-expected demand, Xia Nianwang, another salesman for the project, told the Global Times on Thursday.
In Changzhou, a city in East China's Jiangsu Province that is about 220 kilometres from Hangzhou, several developers reduced their prices last week by 1,000-5,000 yuan per square meter.
Data from the National Bureau of Statistics showed that the growth of house prices in 70 major Chinese cities slowed for the first time in 14 months in January, with prices in five cities including Wenzhou and Hangzhou seeing a month-on-month decline.
"High inventories of new homes, high prices and a shortage of funding have forced some property developers to cut prices," Zhang Hongwei, research director of Shanghai-based property consultancy ToSpur, told the Global Times Thursday.
But the fundamental reason behind the falling prices is the tightening credit environment in China, he said, which makes it difficult for property developers to obtain loans and forces them to cut prices in order to spur sales.
Industrial Bank Co said in a statement on February 24 that it had halted some types of loans to property developers until the end of March, with the aim of adjusting its asset structure and improving its services for the real economy.
The tightening of credit is also affecting banks' mortgage policies.
Many banks have canceled the 15 percent discount on mortgage rates for first-home buyers, and some smaller banks even raised their mortgage rates to 130 percent of the benchmark rate, China News Service reported Wednesday.
"The rising mortgage rates will lead to weakening demand from house buyers and also trigger a decrease in house prices," Zhang said.
Slower growth ahead
There have been debates about whether the price cuts will spread to more cities, and experts said smaller cities will face more downward pressure than large ones, but an overall slump in house prices is unlikely.
After faster-than-expected house price increases in 2013, house price inflation will moderate in 2014, due to continued credit tapering and supply adjustment, Zhu Haibin, chief China economist at JPMorgan Chase & Co in Hong Kong, said in a research note sent to the Global Times Tuesday.
First-tier cities generally face an under-supply situation due to stricter property controls, tighter supply and stronger demand, he said, while it takes time for smaller cities to digest the increase in new supply.
Zhu forecast that house prices would increase by 10 percent in first-tier cities, 5-10 percent in second-tier cities, and remain flat in third-tier cities in 2014.
"The influence of property investment on China's economy will still be important in the short term, and urban residents are not likely to give up their desire for better living conditions," Ren Zhiqiang, chairman of Huayuan Real Estate Group, wrote on his Weibo on February 23.
Despite an oversupply of property in certain regions and tightening of mortgage loans, property sales, prices and investment will continue to grow, albeit at a slower rate, Ren said.
Ren also noted that the property market will be affected by a batch of policies on urbanization, a household registration system and affordable housing that are expected to be unveiled during the ongoing annual two sessions (National People's Congress and National Committee of the Chinese People's Political Consultative Committee), which are scheduled to held from March 3 to 12.
Without reform of the monopoly on land sales held by local governments and an expansion of the experimental property tax program, the rising trend of housing prices in China will not be reversed, Everbright Securities said in a research note published Wednesday.
China will release new legislation on property tax reform, Finance Minister Lou Jiwei said at the meeting of G20 Finance Ministers and Central Bank Governors held in Sydney on February 24.
To achieve property tax reform, a unified property registration system needs to be established first, followed by the rollout of an asset appraisal law, Liu Jianwen, director of Peking University's Fiscal Law Research Center, was quoted as saying on Tuesday by the Xinhua News Agency.