A glut of flats combined with growing liquidity pressure has triggered a price war in the mainland real estate market, driving down rates for some new homes by almost a third.
Some analysts said the worst was yet to come and predicted further cuts by small developers in the coming months as the central government's austerity measures cooled buyer appetite. 'The price war has begun,' said Alan Chiang Sheung-lai, head of residential for greater China at property consultant DTZ.
Price adjustments first appeared in first tier cities such as Beijing, Shanghai and Shenzhen but have extended to second and third tier cities such as Hangzhou, Hefei and Chongqing.
Among developers dropping prices are China Vanke, China Overseas Land & Investment and Sino-Ocean Land. Hutchison Whampoa has reportedly cut prices at one of its projects in Chongqing.
In Beijing, units at the Jinyu Dream Town project in Changping district have fallen to below 15,000 yuan (HK$18,330) per square metre. Developer China Vanke was seeking 17,000 yuan per square metre last year. The company was unavailable for comment but a sales representative said the reduction reflected market conditions.
Sino-Ocean Land has cut prices of a project in Shenzhen by 30 per cent. Hutchison Whampoa has reportedly slashed prices by 32 per cent at its Cape Coral development in Chongqing, asking for 10,800 yuan per square metre.
Shenzhen-based Kaisa has seen a 12 per cent decline in the average selling price of its projects this year. The developer expects further reductions next year, according to a report by brokerage firm CCB International Securities.
China Overseas, Longfor Properties and Greenland Group took the lead in lowering prices in Shanghai, the mainland's wealthiest city but which also seen some of the biggest price gains last year. The move triggered a series of protests by flat owners concerned about a drop in the value of properties they had already bought.
Chiang of DTZ said governments in some cities such as Hangzhou and Hefei have advised developers when they apply for permission to begin pre-selling units to limit reductions to 20 per cent. The move is aimed at avoiding protests like those that have occurred in Shanghai.
However, analysts say that given the overall situation of the economy price cuts were inevitable.
'The worst will not be over if the tightening policy continues. Things might get worse down the road,' said Alan Jin, head of Asian property research, excluding Japan, at Mizuho Securities Asia.
'We expect to see more price cuts, especially from small developers with less room to manoeuvre. Relatively large developers will not cut prices across the board,' Jin said. China Overseas and Longfor, for example, have been selective in choosing which projects will see reductions.
Looking at the property market across the mainland, Jin and Chiang predicted reductions of about 20 per cent.
'The market as a whole is unlikely to see a price drop of 30 per cent, though in some suburban areas it is likely,' Jin said.
A report by CCB International said pessimism was likely to surround the mainland property market next year, with many bracing for a lower volume of transactions as inventory levels rose, stoking further price reductions.
Home prices fell by an average of this much in 100 key mainland cities last month, against a year earlier, according to a survey