More Shenzhen owners decide to cancel deals as home prices continue to rise

A growing number of homebuyers in Shenzhen have been forced to take legal action against owners wanting to cancel their sales agreements in the wake of surging prices, according to industry experts.

Shenzhen is leading the property market recovery with a 30 per cent increase in home prices in just two months after the Chinese authorities rolled out the strongest policy support measures in March to revive the ailing industry.

"Amid such fast property price increases, some vendors believed they had sold their flats at below market price and decided to walk away from the deals," said Andy Lee Yiu-chi, the chief executive for southern China at property agency Centaline China.

The return in buying confidence was triggered by the authorities cutting the down payment for second-home buyers to 40 per cent from 60 to 70 per cent, Lee said.

"Now people are panic buying and not panic selling," he said.

A spokeswoman at Guangdong Xinrong Law Firm said the company had received about 70 cases relating to disputes between homebuyers and vendors.

"We have not seen such large numbers of legal disputes between individual buyers and vendors since the last peak in 2007," she said.

Given home prices rose significantly in a short time, she said vendors saw no harm even though they would be charged penalties of about 10 to 20 per cent of the agreed flat value for cancellation of the deal.

A client had agreed to buy an 80 sq metre flat in Nanshan and put down an initial deposit of 200,000 yuan. But the vendor refused to sell after the flat value rose sharply to more than 5.5 million yuan.

The vendor would not mind paying as much as 20 per cent, or 800,000 yuan, compensation to the buyers if prices continued to rise, the spokeswoman said.

"But the buyer does not want the refund. What they want is to proceed with the deal," she said.

She said the legal cases would take about a year to settle.

Lee said about 2 to 3 per cent of the 4,000 secondary property transactions handled by the firm involved such disputes.

"Some buyers are willing to increase the purchase prices but are just limited to 1 or 2 per cent of the flat value," he said.

Lee believes sales of second-hand homes in Shenzhen would exceed 20,000 last month.

"It will set a historical high in Shenzhen," he said, adding that the previous peak was 10,000 deals in 2007.

To cool the recent unexpected sizzling real estate market, banks in Shenzhen lowered the discounts for home lending for first-time buyers last week, according to agents. Mortgage loan applicants for first homes would receive a 5 per cent discount, down from 7 per cent previously.

Lee said he believed deal volume could drop this month.