Price cuts by property developers leads to angry protests by existing homeowners

Visitors gather at a property development showroom in Dongguan, Guangdong province during the ‘golden week’ holiday. Price cuts on homes by developers have sparked protests in China. Photo: Financial Times

China's property developers usually count on September and October to be their "gold and silver" months for new home sales, but this year is proving to be different.

Instead, they are feeling a chill and one major developer has warned that "winter" is coming.

The industry has remained strong over the first eight months of this year but started slowing last month.

Sales by floor area dropped 27 percent year on year during the "golden week" national holiday earlier this month, a traditional peak period for house buying in China, according to research house China Real Estate Information Circle (CRIC), which tracks 31 cities.

Although average new home prices in China's top 70 cities grew 1.4 percent in August, the last month for which official figures are available, analysts say falling sales mean a period of price cuts has begun.

Official statistics showed that transactions of homes in Shangrao, east China's Jiangxi Province, last month fell by 22 percent from August and 18 percent from the same month last year.

In the country's commercial capital Shanghai, sales over the past five weeks have risen slightly from the same period last year, but average prices dropped in September by over 3 percent from August and 1.4 percent from the same period last year.

Sales of real estate giants Vanke and Country Garden in September declined 6.26 percent and 22.7 percent year on year respectively.

To lure buyers, many developers offered promotions, including free cars and downpayments of as little as 10 percent of the purchase price. Other developers even slashed prices as much as 30 percent.

However, the promotions have drawn angry protests from existing homeowners who had not received such offers.

The protests were targeted at sales offices, with varying levels of intensity – from throwing rocks to holding banners and putting up funeral wreaths.

In Shangrao last week, angry homeowners who paid full price for units at the Xinzhou Mansion residential project attacked Country Garden's sales office after finding out it had sold units for prices around 30 percent lower than a year ago. The office's windows were smashed by scores of protesters throwing rocks.

Similar protests took place at One Mansion in Shanghai, another of Country Garden's projects. There, apartments are going for as much as 25 percent less than two months earlier.

Vanke also faced protesters in Xiamen, southeast China's Fujian Province, after it offered new buyers discounts of around 30 percent.

In Zhangzhou, Fujian province, people protested outside the offices of a Ronshine China Holdings project, waving banners that called the company an "unscrupulous developer".

"Property owners tearfully cry out on their knees for the government to serve the people," read one banner held by protesters in Pingdingshan, north China's Henan Province, after a property developer cut prices 20 percent.

In many such cases, protesters demand compensation or cancellation of their purchase. In order to prevent further social unrest, developers often accept their demands.

Hu Xingdou, a Beijing-based economist, said despite China's market-oriented reforms 40 years ago, investors still showed no respect for market and social rules.

"They are lack of the spirit of contract, and they always think they can fight against the rules," he said. "As a commodity, the value of homes can both rise and fall. Investors should obey this fundamental rule."

Soaring property market

China's property market has soared since the 2000s, making home ownership one of the quickest ways to gain wealth.

In Beijing, homes that went for an average of around 4,000 yuan (US$580) per square metre in 2003 are now above 60,000 yuan (US$8,600) a square metre.

The industry is estimated to account for 15 percent of China's gross domestic product, with the total rising closer to 30 percent if related industries are included.

Vowing to make its economy less dependent on the property market for growth, Beijing has been taking actions to cool the hot market for years

However, it faces mounting pressure from angry homeowners who urge the government to keep prices rising.


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