Big Trouble in China Housing: Government Bans "Malicious" Price Cuts

Submitted by Investing In Chinese Stocks

Pizhou, Fujian has a solution to falling home prices: ban them. They're not alone in using this strategy. Other cities have told developers to reverse price cuts and one went so far as to punish a developer's creditors.

iFeng: 房企“恶意降价”被紧急叫停,房价到底能不能降

On the finite price, the price can not rise. And the property market environment is so cold, the price of the house is not good to sell. It is not easy to cut prices. After the new term "price reduction attempt" was born, a new word appeared in Zhangzhou City, Jiangsu Province, "malicious price cuts."

This is really an anecdote. Developers who have such a big hatred, do you have to carry "malicious" to cut prices? Who is going to be malicious?

A developer was warned about cutting prices to move inventory:

At the beginning of February 2018, the Real Estate Chamber of Commerce of Zhangzhou City, Jiangsu Province issued a "Circular on the recent sales chaos in the real estate market in Zhangzhou", which was circulated on the Internet. It has attracted many onlookers.

The announcement states:

There are some properties in Zhangzhou that have disrupted the market with low prices and unfair competition. The sales price is seriously lower than the filing price. The individual properties have dropped by 2,000 yuan/square meter. This kind of behavior has seriously disrupted the order of the real estate market.

The Zhangzhou Real Estate Chamber of Commerce requires housing companies to sell according to the record price, and must not provoke a price war.

Neither the public nor the developers are amused.

The price cut is to disrupt the market order. This wave of operation not only makes the developers of price cuts a bit confusing, but also makes the masses of people somewhat shocked. When the housing enterprises raised their prices, they never saw someone saying "malicious price hikes" and "disturbing the market order." When the house prices fell, the market order was disrupted.

Coincidentally, just a few months before the “bad price cut” in Ganzhou, the neighboring Anhui Province had a joke about the developer’s “price reduction attempt”.

In November 2018, a property in Hefei, Anhui Province, reported a price reduction of 6,000 yuan / square meter, the results did not take long, the local real estate director personally went to the investigation, and the price back went up again. Immediately after the price reduction of a real estate in Lushan, the local government organized a symposium on “the attempt to reduce the price”, suspended the pre-sale permit for the relevant real estate, and imposed penalties on the four cooperative banks.

Propping up home prices isn't only a strategy for keeping the people content. The main goal may be supporting land sales that fund local governments. Cities are racing against the credit impulse though.

If inflation arrives in time, nominal prices can rebound. If not, developers are going to be stuck will immobile inventory as debt comes due. And then it will be the bond market's problem.