Chinese government plays hardball with dishonest property agents and developers

China’s battle against housing inflation is turning nasty in some cities, with public shaming, arrests and raids on offices in search of evidence of forged documents and dishonest marketing.

On instructions from the leadership in Beijing, a campaign has taken shape across the nation early this month to freeze housing prices with involvement of not only banks and housing authorities but also police and propaganda departments.

Municipal authorities in more than 20 cities where home prices are rising fastest have tightened restrictions on home purchases by banning many potential buyers from the market and squeezing credit.

The government has also mobilised law enforcement to punish “illegal” marketing and rumour-spreading.

In Shenzhen, the quality supervision commission, which usually looks after food safety, on Thursday sent 12 teams to “raid” 20 property sales offices across the city to “shock” developers and sales staff, it said. Government officials stormed into the offices and ordered employees to produce all legal documents to check against marketing claims.

One development, Qianhai Dongan, where units sell for 75,000 yuan (HK$86,500) per square metre, was found to have been dishonest about sales performance. It sold 20 per cent of the available units flats on the first day but publically claimed 90 per cent had sold out in two hours. It had “misled consumers” by putting a kindergarten sign on its model table – but the school does not appear in municipal planning records, the commission said in a statement.

A person who made comments online under the name “Today I buy a home” was arrested for spreading rumours that speculators in Shenzhen were committing suicide because of the government’s moves to rein in prices, the housing ministry said in a statement.

So far, Beijing has preferred to point the finger at greedy developers and crooked sales agents, while avoiding taking fundamental steps to directly address the problem, such as boosting land supply or charging property tax.

Louis Kuijs, the head of Asia Economics at Oxford Economics, wrote in a note that the

leadership was unwilling to take serious steps to tighten credit at the national level, as Beijing viewed “rapid credit growth and a recovery in real estate key in meeting GDP growth targets”.

Although some local governments were trying to address the problem, they were also “glad to see land prices rise as that boosts revenues from land sales”, Kuijs said.

Claire Huang, a China economist at Societe Generale, said a lack of investment alternatives, rather than dishonest dealers, was underlying housing inflation in major cities.

“Yield-hunting investors will continue to jostle for assets generating high returns, which in turn will push up asset prices,” said Huang.