About two months ago, a medium-sized developer slashed home prices at its Hangzhou project by almost a third to 11,800 yuan (US$1,891) per square meter. The news rattled the property market of the capital of the wealthy eastern province of Zhejiang, a barometer of the country’s housing winds. But city cadres tried to downplay the impact at the time, believing the developer was relatively small and that the move was just an isolated case. And thus initially, nothing was done.
But when a batch of realty heavyweights including Vanke (200002.CN, 000002.CN), China Overseas Land & Investment (00688.HK), Poly Real Estate (600048.CN), Wharf Holdings (00004.HK), followed suit in the following months, Hangzhou officials felt compelled to stop things from getting worse. After all, they were already in the hot seat with other cities watching closely to see whether they would implement the full range of Beijing’s speculation curbs even though the bottom may have already fallen out of the market.
The city’s reform and development commission announced with immediate effect on April 23 that all developers must report to the municipal authorities in advance for any plan to lower unit home prices.
Although the commission used the word “report” rather than “apply for approval”, the ad hoc measure is still expected to present barriers to realty firms rolling out further discounts.
Figures from the National Bureau of Statistics show that Hangzhou’s average home price stood at 15,388 yuan per sqm in March, down 11.3 percent year on year. In the heydays between 2011 and 2013, Hangzhou home prices constantly ranked among the nation’s top five.
When prices are on the slide, buyers will certainly take their time buying a home. Data from the city’s housing administration bureau presents a bleak picture — slightly more than 10,000 homes were sold during the first quarter, down 37 percent from a year earlier, and just two transactions were made during the Lunar New Year break, the traditional peak period for home sales.
On the surface, the result is what Beijing wants from its tough property clampdowns — price cuts are seen as necessary corrections to the exorbitant prices. Needless to say, Hangzhou officials think otherwise.
They indulged wholeheartedly in the feverish land sales of the past five years and made land income the single major source of the government’s revenues. Hangzhou sold 132.7 billion yuan worth of land last year, equivalent to 80 percent of the city’s fiscal revenue.
When home transactions are stagnant, naturally the breakneck pace of land sales cannot be sustained. And, this applies especially to Hangzhou’s realty market; the city is already sitting on a swelling stockpile of 113,000 units with a total floor area of 10 million sqm as of this February.
Of course, it would be risky for local cadres to defy Beijing’s policy stance, but that doesn’t mean they will sit idly by when the local realty market is on the verge of a free fall.
Analysts say that requiring developers to report future price cuts is just one step; more workarounds to revive the realty market — like flexible tax incentives and fee waivers, local residency permit quotas for non-local buyers as well as liberalizing mortgage restrictions for second-time homebuyers — could be in the pipeline.
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