BEIJING (Reuters) - China thought it had a good plan: Bring down soaring house prices so millions of frustrated wage-earning families can afford new homes, and social harmony will follow.
However, furious protests by existing homeowners against price-cuts on new developments show that the road to real estate equilibrium is a rocky one.
For every aspiring home buyer in China thwarted by a speculative property bubble that has seen house prices in key cities jump nearly 10-fold in 10 years, an existing homeowner is anxious to see the biggest investment they’re likely to ever make keep rising.
Anxiety built to anger in Shanghai on October 22 after Longfor Properties (0960.HK) cut prices on the latest phase of a housing development to revive stalling sales at the site.
A mob of about 300 people smashed up the development’s sales and demonstration center, according to local media reports.
All had bought homes in earlier phases of the project at prices as much as 30 percent above current selling levels - levels which Longfor insists just reflect market conditions.
“We decided the price according to market demand,” the company said in a statement emailed to Reuters. “The promotion, which ended on October 20, was an effective one when the company proactively grasped the right market opportunity.”
Hundreds of homeowners were on the same Shanghai street a day after the Longfor incident, staging a smaller protest in a Green Land Group development. There’s been uproar at sites developed by China Overseas Land (0688.HK), Sino-Ocean Land (3377.HK) and Huaye Real Estate Co (600240.SS).
Protests have flared in Beijing as well as Shanghai and threaten to spread. Social unrest is anathema for China’s ruling Communist Party.
“The protests run an alarm to the public that gone is the time when home prices only rise and never fall. Investors need to be cautious,” the People’s Daily, the top Party newspaper, said in an opinion piece posted on its website on October 26.
Property is a touchstone issue in the world’s second-biggest economy, generating around 10 percent of China’s GDP.
Besides would-be buyers and profit-hungry developers, local governments across the country rely on income from land sales to service debts estimated at 10.7 trillion yuan ($1.7 trillion) and fund construction of roads, railways and schools.
The land market in the eastern city of Nanjing effectively stalled after it failed to sell more than half the 16 lots it offered in October and got only bottom prices for those it did.
So Nanjing’s government, along with Anhui province, became the latest to defy central government property calming measures, relaxing local mortgage rules last week.
Beijing has not yet reacted, but a move in early October by the local government in the southern city of Foshan to loosen restrictions on the number of homes each family can buy was suspended within hours of its announcement.
Meanwhile, the central government has not followed up forcefully so far on the expansion of purchase restrictions it announced in mid-July. And there is evidence that prices have cooled since then.
Data from the 70 major cities tracked by the National Bureau of Statistics showed that house prices in September stabilized or declined from August in two-thirds of them. There was even an outright year-on-year fall in the eastern coastal city of Wenzhou.