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China is struggling to control home prices even with rising power

Prices for newly built houses in Wuhan have risen by 6 percent last year. But in October, there were indications of a trend taking place in central China.

A group of homeowners staged a protest last month after a manufacturer cut prices by 30 percent on work they had already bought. Several protesters were arrested, state-sponsored journalists also reported last week.

The contents of Wuhan are the most recent signs of trouble in the whole country house builders poses a threat to house prices, increasing the need for housing collapse that is already threatening China’s vast economy.

In recent years, government authorities have put in place measures to control inflation in order to avoid the risk of inflation in the region that produces the largest family wealth.

But at a time when the real estate industry is making a comeback and many manufacturers are already failing, officials in some areas are also trying to curb some price movements.

“Prices are not just about prices – governments are also afraid of falling prices,” said Ting Lu, China’s chief economist in Nomura. “They want to prevent developers from reducing prices [and] competing with one another fiercely. ”

Genting Secret Garden Ski Resort rooms in Zhangjiakou, where house prices are down © Greg Baker / AFP via Getty Images

In Zhangjiakou, a mountain town in the province of Hebei, prices have skyrocketed due to its performance at the Winter Olympics next year but have declined recently. In September, government officials introduced a “double settlement” law that barred newly built homes from being sold at less than 85 percent of their original value.

Other cities, including Yueyang and Guilin, have added to the list. Shenyang officials have called for “two laws”, which prevent inflation and lower prices, to promote “healthy growth of the real estate market”.

Wuhan’s growth, which according to the National Business Daily was seen as one of the most sought after items in the region, reflects the risk that discounts on new projects result in higher prices.

In China, where fast visiting cities has caused hundreds of millions of people to move from the countryside to the cities since the 1990s, the official data looks at new and not existing items, unlike domestic markets in the UK and US.

Last year, according to Nomura, the purchase of new homes was Rmb15.5tn ($ 2.4tn), more than double the Rmb7.3tn spent on existing homes.

The need for new homes has boosted the growth and debt of home builders in China, which since last summer have been pressured by Beijing to reduce their chances. The financial crisis for the Evergrande manufacturer and the infidelity of several of its peers have prompted many of them to offer discounts on their products as they rush to make enough money to support their businesses.

Investigators in Citi argued last month that officials were trying to “reduce prices for fire deals with Evergrande by using high prices”. But he added that “pricing controls do not work” because “the situation is complicated”.

Evergrande sold Rmb3.65bn of property from the beginning of September 20 October – less than 1 percent of its total sales in 2021. On its official WeChat account last week, Evergrande said it had delivered 57,462 homes from July to the end of October. .

Over the years, officials have tried to improve market forces, often using newly built stocks instead of trying to disrupt prices in the secondary market. Mu many cities prices are still rising, although there are laws to reduce it.

Louis Kuijs, chief economist at Asia Economics at Oxford Economics, pointed out that Chinese lawmakers see a sharp rise in prices “as a sign of the housing market” and as a result of social unrest.

In the months since the stock market began to decline, China has expanded its market controls by not only reducing lending to manufacturers but also forcing bank lending.

In Shenzhen, mechanisms have been put in place to increase inflation rather than freshly constructed, and to reduce real estate debt related to market prices. The same laws were enacted in other cities this year including Shanghai, Ningbo and Xi’an.

The Shenzhen housing office said in a statement in February that its efforts were part of a plan to ensure that homes are “living, not imaginary” – a statement echoing repeated comments by President Xi Jinping in 2017.

Although new house prices in 70 major Chinese cities fell in September last month for the first time since 2015, prices are still much higher than last year and there are few signs that the government has stopped pushing for change. market.

Lu added that banks had been asked by Beijing to increase loans to developers, but added that the government “should keep most of its assets until things get worse”.

But if the pressure on developers increases, regulators may be concerned about significant reductions in market sentiment. Beijing is thriving with property taxes, and local governments already rely on money from buyers.

Price adjustment also raises doubts about the state of housing markets. On Weibo, a social networking site, some users commenting on Wuhan’s protests also reported that prices had dropped sharply in cities in the Hebei region but no one showed up.

“If prices are going down in China, TV channels are in for a treat,” Kuijs said. “If you read your newspaper, and according to government prices it doesn’t go up, I’m not sure you can afford that.”

Writers Thomas Hale, William Langley and Andy Lin in Hong Kong and Wang Xueqiao in Shanghai


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