When prices are going up, we embrace capitalism. When prices are going down, we embrace socialism.
As the Chinese real estate market cool, I have noted that developers should be under pressure at some point to cut prices more aggressively in order to generate cash flow. Some have wondered why prices haven’t really fallen even we all know that real estate developers are in trouble. One of the reasons, I believe, is that developers are hopeful that something like late 2008 and early 2009 would happen, with government and the central bank easing policy dramatically, so that they try to be very patient and not to cut prices, and/or get funding from the shadow banking system. Of course, now they are finding it increasingly hard to hold on for much longer.
Now imagine this: let’s say you have bought a flat from a developer for CNY5 million, and that is part of the first phase of the development. You were very happy, and expected that when the second phase of the development is sold, the prices will be higher. In that scenario, your CNY5 million is well spent.
Now consider this: the developer is in trouble, and is desperate to sell. It cuts prices such that the flat similar to yours is now being sold at CNY4 million only. You would be pretty unhappy.
So here we are, home buyers of previous phases of various developments are now very cross. Xinhua pointed out 2 days ago that as 2 developers are cutting prices. Longfor (960.HK) cut prices in the latest phase of one project in Jiading Shanghai by 33%, and another project by as much as 40%. Tens of the owners who bought the previous phase rushed to the sales office and protested against prices cutting, as that means they will be losing money on their investment in the previous phase. And they have a Weibo account (a twitter-like microblogging thing in China):
But then, another report from 163.com today, which appears to be referring to the same development, suggests that the discount will end as it has helped to sell most of the properties. Another report from Xinhua yesterday mentioned another bizarre anecdote: one bloke joined many other blokes in protesting against prices cutting. At the same time, that bloke was on the phone all the time, telling his friends that the prices are falling and they should come to buy.
In other cities like Hangzhou, Nanjing, and others, earlier homeowners are also asking for refund and refund according to Xinhua, although it is not that easy to be done in reality.
This post originally appeared on Also Sprach Analyst.
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