Price drops reflect widening gap in property market

Though home prices in most Chinese cities continued to rise in early 2014, developers in some smaller cities have begun discounting homes under the pressure of piled-up inventory.

Dothink Group, a property developer based in Zhejiang Province, reduced the asking price of its Beihai Park Project in the provincial capital of Hangzhou from 18,000 yuan (2937.6 U. S. dollars) to 15,800 yuan per square meter last Wednesday for a sell-off.

A day later, Tenhong Land company joined the price war by slashing the prices of its Xiangxieli Project, located near Beihai Park. The average asking price for the project was reduced from 17,000 to 13,800 yuan per square meter.

Zhao Luxing, researcher with the Ministry of Housing and Urban-Rural Development, said the price drops were triggered by severe oversupply.

Statistics show that the real estate inventory in Hangzhou City had reached 113,000 units by the end of 2013, among which 77,000 units were residential homes.

The discount has attracted a large number of buyers to the two housing projects, and all 200 houses in the Beihai Park Project were bought up within two days.

According to Cheng Weiming, a commentator with kfw001.com, a property information website in Hangzhou, large inventory is a shared problem of many second- and third-tier cities, and more cities may start cutting home prices soon.

In Changzhou City in neighboring Jiangsu Province, the developers of a project announced a 40-percent discount last week. Prices were reduced to an average of 7,000 yuan per square meter, down from 11,000 yuan in December.

Prices of new residential properties climbed in 62 cities around the country last month, compared to 65 in December, while six cities registered price drops, an increase of four from December, according to the National Bureau of Statistics, which tracks both new and existing housing prices in 70 major cities.

Many are pessimistic about the industry and some even speculate that the country's property market is heading for a crash.

Wang Shi, founder of China's largest residential developer, China Vanke, said that "the situation is bad" for this year's property market.

Wang Jianlin, founder of property developer Dalian Wanda Group, said that the market is "not optimistic."

However, most analysts believe that housing prices are not likely to plummet in the near future, and the price drops come against the background of a widening gap between markets in big and small cities.

Liu Hongyu, researcher at Tsinghua University, said that first-tier cities and major second-tier cities are currently facing a shortage in residential properties, while third- and fourth-tier cities are under the pressure of oversupply.

Statistics from the National Bureau of Statistics show that in January the prices of new homes in the four first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen grew by over 18 percent from the same period last year. Shanghai has seen growth of 20.9 percent.

According to E-House, a leading real estate services company based in Shanghai, the average land price for first-tier cities reached 10,136 yuan per square meter in January, up 125.1 percent from the previous month and 253.1 percent from a year ago.

Experts predict that housing prices in the biggest cities and those in smaller cities will move in opposite directions, as shortages in the big cities and oversupply in smaller cities will persist this year.

JP Morgan Chief China Economist Zhu Haibin said the housing prices for first- and second-tier cities may increase by 10 percent and 5 percent respectively, while prices in third-tier cities will be stable in 2014.