Chinese cities try to limit property price cuts as economic risks grow

HONG KONG Fri May 30, 2014 4:41am EDT

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HONG KONG May 30 (Reuters) - Some Chinese cities are trying to limit property price cuts to 15-20 percent from the original asking price, developers and real estate agents said on Friday, in a bid to brake a steeper industry downturn and boost confidence in the market.

The eastern city of Hangzhou and the southern city of Dongguan have recently reinforced regulations first imposed in 2011 that prevented developers from adjusting prices, up or down, on residential projects by more than 15-20 percent compared with what was registered with authorities.

Many local governments, including in Hangzhou, had eased restriction on home purchases since April to boost the local economy, as home prices fell to 11 month-lows after growing at double-digit rates last year.

Home prices in China started to cool in late 2013 after the government stepped up a sustained campaign to clamp down on speculative investment and easy credit, fearing the risk of a property bubble.

"The (Hangzhou) government hadn't strictly enforced the rule in the past, but recently it has issued a statement reinforcing it," said a developer, who declined to be named due to the sensitive nature of the issue.

"The rule was initially intended to stop developers from marking up prices too much before this year," said Andy Lee, realty Centaline chief executive of China southern district. "Now we're seeing the rules being enforced because prices in Hangzhou and Dongguan have dropped more than 15 percent."

Local media said some buyers in Dongguan had failed to register new homes online that were purchased after a more than 15 percent discount.

Developers and market observers said the impact of limiting price cuts would be small as developers could still lower prices for new projects and re-submit an adjusted price list for existing projects with authorities, which usually takes 7 to 11 days to review.

Some developers also said they usually offered promotions rather than actual discounts to boost sales. The stricter limits thus raise more concerns for the small developers.

"The impact on the smaller, local developers may be bigger because they have fewer projects to generate cashflow," said Toni Ho, an analyst at BOCOM International. (Reporting by Clare Jim; Editing by Jacqueline Wong)

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