China property developers cut new home prices in compliance with government curbs designed to cool market

Chinese property developers are cutting prices for newly launched flats in leading cities following government intervention to eliminate speculation in the market.

More than 20 Chinese cities have rolled out a raft of tightening measures in a bid to curb the overheated housing market since the fourth quarter. However, some local governments have gone a step further to directly control prices after president Xi Jinping said “houses are built to be inhabited, not for speculation”, at a meeting in December, 2016.

Shenzhen-based Logan Property expects its new housing project Jiuzuan in Longhua District, which is scheduled to be launched in the first quarter to be priced at 60,000 yuan per square metre, despite its prime location connecting two metro lines and just two minutes subway to the Shenzhen North Railway Station.

“We wanted to sell higher but have no choice, the price limit for Longhua District is now set at about 60,000 yuan per square metre,” said Lai Zhuobin, chief financial officer at Logan Property.

In comparison, a similar Logan project nearby, which launched sales at the end of 2015 and sold at 60,000 yuan per square metre at the time, has since risen to 100,000 yuan currently.

Shenzhen, which ranks as the country’s hottest housing market after new home prices surged 50 per cent in 2016, is facing tight scrutiny on real estate prices.

In January, the Urban Planning, Land and Resources Commission of Shenzhen Municipality unveiled government guidance on home prices stipulating that builders would not be granted presale permits if they set prices higher than the regional average.

As part of the new measures, developers are to be notified of specific price limits when they submit applications.

Cai Qi, the acting mayor of Beijing, in late December pledged the municipal government will “make sure”next year’s new home prices will “not rise”.

Tianlang, a newly released villa project jointly developed by Beijing Capital Development and Longfor Properties, have sold some units for only 6.5 million yuan, or a 19 per cent discount from an initial price target of 8 million yuan per unit, thanks to the government’s new market cooling measures.

“Buyers have rushed to buy our project and many of them can afford 8 million yuan or higher,” said Xu Tonghui, director of brand management at Longfor Properties.

In addition to guidance on prices, developers said local governments have postponed presale permits for projects in expensive areas of leading cities to make sure the overall monthly price data is trending lower from the previous month.

China’s property sales have fallen since the policy tightening. Of the 70 Chinese cities tracked by the statistics bureau, 46 reported price increases in December, compared with 55 in November. Average new home prices in China’s four biggest cities were unchanged in December on month, slowing from a 0.1 per cent increase a month earlier.

And more measures are coming to prick a potential bubble. State-owned China National Radio reported Monday that 20 cities including Shenzhen, Nanjing and Suzhou will tighten mortgage requirements, following similar moves in Beijing and Guangzhou.

Beijing’s municipal government last week shortened the mortgage duration for second-home borrowers domiciled in the city to no more than 25 years, cutting back the loan period from the previous 30 years.

Industry analysts forecast a dimmer outlook for the sector this year amid policy risks. Morgan Stanley expects new home sales by volume in 2017 to decline 5 per cent, and average selling prices to increase 3 per cent. They forecast new home sales in first and second tier cities will decline by 15 per cent, while prices will likely remain flat.

But Tan Huajie, senior vice president of China Vanke, the country’s No 2 developer by sales, in an recent interview said he believes home prices in China were high but non unreasonable, adding that as a whole the nation’s housing market was not in a bubble.

Logan’s Lai said the tightening measures can not ultimately solve the imbalance between supply and demand in first-tier cities, noting that prices in these cities had hardly come down.

Shenzhen’s annual new construction land supply is only about 2 million square meters, compared to 10 million square meter of its smaller neighbour Foshan city, he said.