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Xinhua: Housing Prices Are Dropping in China

Xinhua reported that recently some real estate developers in Beijing, Shanghai, and Hangzhou have reduced their housing prices in order to promote sales. For example, the “Beijing Business International City” apartment complex is selling at 15,000 yuan per sq. meter (U.S. $256 per sq. ft), down from its peak of 25,000 yuan. “Long Hu Li Cheng” in Shanghai gave the buyers a 280,000 yuan (U.S. $43,000) discount, or 20 to 30% off the list price. This has attracted a lot of buyers, but has also greatly agitated the earlier buyers who purchased properties at a higher price. The earlier buyers are demanding refunds of the “lost value” or even that they be able to return the properties to the developers.

The article listed three groups of developers who are considering the decision of whether to reduce the price of property. The first group conducts quick sales in a short period to recover their capital investment. It tends to include limited developers with only spotty action and does not impact the overall market price. The second group is the small to mid-sized developers who might be forced to lower prices because of pressure to repay loans. There was a burst in real estate trusts after 2009 with an interest rate of 15% or more. The trusts must be paid back between September of this year and the end of next year. The third group is the big companies that have sufficient capital. They face a pricing dilemma. If they don’t lower their prices, the properties won’t sell; but if they do lower their prices, there might be complicated disputes with owners who paid higher prices earlier.

According to statistics, of 70 large or mid-size cities, the housing prices in 17 of those cities were lower in September than a year ago; 29 kept the price the same; and for the cities with an increased price, the increases were all below 0.3%.

Wen Jiabao recently expressed that it is critical to control the real estate market and maintain a healthy growth of the market (Ed: not to have a dramatic drop in prices). Officials from Shanghai and Beijing all expressed their determination to “unswervingly control the real estate market and ensure that housing prices remain ‘flat or with only a slight decrease.’”

Source: Xinhua, Oct 26, 2011