China’s Property Developers Cut Prices—and Homeowners Are Resisting
Local governments grapple with challenge of allowing home prices to fall
After being stuck in a housing downturn for two years, cities across China are giving real-estate developers the go-ahead to cut prices on new homes to revive sales.
They are quickly running into resistance from homeowners who don’t want to see the values of their properties go down.
Unlike in the U.S., where home prices are largely determined by market forces, strict government price controls have long been used in China to help prop up real-estate values. Official home-price indexes for major Chinese cities, which climbed for years, have held up remarkably well despite a deep slump in new-home sales.
In Huizhou, a southern Chinese city near the metropolis of Shenzhen, one of the country’s largest state-owned developers dropped its prices during a national holiday in early October. Apartments in Poly Sunshine Town, a large high-rise complex, were on sale for about half the price that other units went for in 2020 and 2021.
The lower prices were met with strong opposition from residents who previously bought homes in the same development. Some of them complained to local government officials, accusing the developer of disrupting the market, and demanded compensation for their losses. Under pressure, the local housing authority ordered the developer, a unit of China Poly Group, to stop the reductions and invalidate all contracts with the lower prices, according to National Business Daily, a Chinese media outlet. Poly didn’t respond to requests for comment.
Similar incidents took place in October in Wuhan, the capital city of central China’s Hubei province, and in Xiamen, in the southeastern Fujian province, according to property agents and local media reports. A developer in Wuhan that was part of another state-owned enterprise apologized and canceled its recent sales.
The conflicts show the difficult balance that China is trying to strike as it tries to shore up a slumping property sector without angering citizens and potentially causing social unrest. There is also the risk of further damaging consumer confidence and hurting consumption if people expect their homes—which are among their most valuable assets—to fall in value.
“This is a tug of war among homeowners, developers and local governments as the market continues to seek its bottom,” said Bruce Pang, chief China economist at Jones Lang LaSalle.
The slumping property market has become a significant drag on China’s economic recovery, and Chinese authorities and policy makers have made numerous attempts to resuscitate buyer demand.
Plunging sales were the main reason that the property giant Country Garden failed to pay its international debt in October. The defaults of dozens of developers have spooked many potential home buyers, causing sales at surviving privately run property companies to fall further. Poly’s sales have held up relatively well because buyers have been gravitating toward financially stronger state-owned developers. But like many of its peers, the company has large inventories of properties to sell.
Chinese property developers have to register their prices with local housing authorities before they can sell homes. Government price controls have helped to keep housing values stable by effectively putting a floor under developers’ sale prices.
In recent months, Beijing has encouraged local governments to roll back most of their home-purchase restrictions, as reviving sales has become mission-critical for developers and the broader economy. The country’s central bank has instructed banks to lower mortgage down-payment ratios, and local governments have loosened the definition of first-time home buyers, a category that comes with purchase subsidies and other perks.
Large and smaller cities have begun eliminating price restrictions—in effect allowing developers to set their own prices. In places where there are still limits, some companies have offered de facto discounts by giving free home appliances, parking spaces or even gold to those who are purchasing apartments.
“If you only look from the perspective of reviving the property market, you should let developers decide the prices based on supply and demand, which could result in substantial price cuts,” said Dan Wang, chief economist at Hang Seng Bank China. She added that Chinese regulators would prefer a controlled or gradual decline in prices, but that goal might be hard to achieve in practice.
Pang, the Jones Lang LaSalle economist, referring to a slogan commonly used by Chinese regulators, said: “If prices escalate excessively, it contradicts the principle that ‘housing is for living, not for speculation.’ If prices plummet significantly, it violates the goals of stabilizing housing prices.”
Chinese homeowners have been known to mount fierce opposition to price cuts. In 2008, a sales office of the property developer China Vanke was vandalized in Hangzhou, the capital city of Zhejiang province, after the company dropped its selling prices. In 2011, dozens of people who bought homes at a property in Shanghai picketed outside a developer’s office in the city after it reduced average selling prices of its apartments, according to a state-television broadcast.
In mid-October, a video posted on the Chinese social-media platform Douyin—which was verified by a local property agent in Xiamen—showed people shouting “refund the difference” outside a sales office of Poly, the same developer that had cut prices in Huizhou.
On a message board used by residents to contact the Xiamen government, one poster wrote that the developer “maliciously” lowered prices by half a million yuan, equivalent to around $68,000, overnight. “We implore the government to stand up for us, to revoke the illegal sales contracts, and to compensate homeowners for our losses,” it added.
Local authorities, which are in charge of controlling local home prices, often intervene to prevent such situations from escalating into social discontent.
“Maintaining social stability is important,” said Tao Ran, a professor at the Chinese University of Hong Kong in Shenzhen. Local governments also don’t want home prices to fall too much, because that could cause land values to plunge and further reduce a key source of their revenue, he said.
If prices aren’t reduced, it would be impossible for the market to bottom out, Tao said. “People need to feel that this is not the beginning of a sinking spiral,” he added.