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Since the beginning of this year, favorable policies for the real estate market have been introduced frequently, and the latest trend is that new homes are no longer "price-capped."

According to statistics from China Index Academy, this year, cities such as Shenyang, Lanzhou, Zhengzhou, and Ningde have clearly stopped implementing sales price guidance for newly built commercial housing, that is, canceled sales price limits. Cities such as Yangjiang, Zhuhai, and Wuhu have also optimized their price limit policies, such as shortening the time interval for adjusting the registered prices and canceling the price difference limit for each floor.

The price limit policy was first issued in 2010, aiming to curb the overheating of the real estate market. Under the policy background of "stabilizing land prices, housing prices and expectations", the "price limit" played an important role in stabilizing land prices and housing prices when the market was hot in the past.

However, since the second half of 2021, the real estate market environment has undergone tremendous changes. The unilateral rise in housing prices has become history. The guidance prices for new houses in many places have become "non-existent", price cuts by real estate companies have become the mainstream, and the "price limit" policy has also reached the point of adjustment.

Weakening of price controls

During the period of deep adjustment of the real estate market, local governments' control over housing prices is weakening.

Recently, Tianshui and Baiyin in Gansu Province successively issued notices to cancel the price filing of newly built commercial housing to promote the stable and healthy development of the real estate market. Tianshui also stated that "the sales price will be adjusted in a timely manner by the developer according to market sales conditions."

Previously, Lanzhou also stated that real estate companies no longer need to apply to the Municipal Development and Reform Commission for price registration when applying for pre-sale licenses for commercial housing. The transaction of newly built commercial housing is no longer subject to registered prices, and buyers and real estate companies can negotiate prices on their own.

Zhengzhou has canceled the price guidance for new homes. The local housing security department announced the cancellation of price guidance for commercial housing sales. Developers can set their own prices for sales or go through the pre-sale (sales) permit registration procedures. Since then, its real estate policies have been comprehensively relaxed.

While the government no longer guides new home prices or directly cancels registration, many places are also becoming more "tolerant" of real estate companies' price cuts.

The reporter saw on the leadership's message board that this year, home buyers in cities such as Wuhan, Baoding, Chengdu, Guangzhou, and Chongqing have reported significant price cuts and "malicious price cuts" for properties, but the authorities have all stated that "price cuts by real estate companies are market behavior."

For example, a home buyer in Wuhan said that the developer of Wanhe Guanggu had registered the property for more than 20,000 yuan, but now it is selling it for 12,500 yuan with a "malicious price reduction". The official said that the registered price of the project was about 23,124 yuan/square meter, and the average transaction price was about 18,300 yuan/square meter. Due to a debt dispute between the company and the construction party, part of the house was mortgaged to the construction party. Recently, the construction party sold the "mortgage housing" at a low price in order to recover funds, with the highest price reduction reaching 6,000 yuan.

The local government also said that the price of commercial housing is determined by the developer based on market supply and demand, and the final transaction price is agreed upon with the buyer through a contract, but it must not exceed the pre-sale plan filing price. After verification, the price of the houses sold in the project has not exceeded the filing price, and it does not violate the prohibitive provisions of laws and regulations.

There are also home buyers in Baoding who reported that they purchased a property in Fengfan Home Community in 2022. At that time, the price was more than 14,000 yuan per square meter. Recently, the developer suddenly reduced the price to 11,000 yuan per square meter. The 90-square-meter house suffered a loss of 300,000 yuan, seriously damaging the interests of the owner.

In response to this, the Baoding Municipal People's Government stated that the price of commercial housing is a market-regulated price. Developers can independently determine the sales price based on market conditions and supply and demand. Home buyers and developers can negotiate to determine the price and include it in the contract agreement between the buyer and the seller.

Some home buyers in Chengdu also said that the price for obtaining a certificate for the Tianfu Heyin project in Tianfu New District was around 22,000 to 25,000 yuan, but now it is being "dumped" at an average price of 17,000 yuan with a parking space and property fees included. Relevant departments are requested to thoroughly investigate their "malicious price reduction" behavior.

The Park City Construction Bureau of Sichuan Tianfu New Area replied that the prices of commercial housing are subject to market-regulated prices, and the prices of houses to be sold are clearly marked and announced on a "one house, one price" basis at the project sales site and Chengdu Housing and Urban-Rural Development Rong e-Office. The sales price of each house is negotiated and agreed upon by the buyer and seller, provided that the price is not higher than the announced price.

In Guangzhou, a homebuyer said that he bought Poly Bay at an average price of more than 20,000 yuan in 2022, and now the property is sold at a reduced price of 13,300 yuan. Nansha District of Guangzhou said that developers can enjoy the right to set prices based on market conditions and apply for price filing or adjustment with the housing and construction department. The district housing and construction department has not found any related violations by developers.

Experts: Housing prices will become more differentiated

From the above cases, it can be seen that the current local governments' control over new home prices is gradually weakening. Some have directly cancelled the registered price of new homes, some have no longer issued guidance prices; some still stipulate that the registered price cannot be exceeded, but they no longer interfere with price reductions of properties, and the overall trend is becoming more market-oriented.

Chen Wenjing, director of market research at China Index Academy, said that with the changes in the real estate market environment, the negative impact of the price limit policy has become more prominent. On the one hand, the price inversion not only increases the difficulty of buying houses with real housing demand, but also fails to reflect the real market situation; in addition, limiting the extent of price decline also leads to poor sales of real estate companies and hinders the return of funds.

In her opinion, the regulatory authorities have repeatedly stressed the need to build "good houses" in the past two years, and matching policies are needed to support it. Canceling the sales price limit and returning prices to the market will help companies create good products that meet demand, and is a positive response to building "good houses". At the same time, canceling the sales price limit will also help companies to reasonably price and destock, help companies speed up the return of funds, and ease financial pressure.

Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, believes that after the price limit for new home sales is lifted, developers can set prices freely and do not need to bear responsibility even if they reduce prices later, unless they have made a clear promise not to reduce prices in advance. This will allow them to better use prices for promotions and clearing inventory. However, if the price reduction is too large, it may cause surrounding projects to have to reduce prices as well.

"The cancellation of the price limit policy also has a positive impact, namely that some products with higher premiums will no longer be subject to price control restrictions. These products can be set at relatively higher selling prices, provided that their quality must be consistent with the set price." Li Yujia said.

It is worth noting that although many cities no longer control the prices of new homes, price fluctuations in real estate prices in hot cities will still attract attention.

For example, this year a Beijing home buyer said that the unit price of Wutongshanyu, which will be launched in July 2023, will be around 46,000 yuan per square meter, of which the 62-square-meter unit will be priced at 2.806 million yuan, and the sales consultant guaranteed the lowest opening price; however, in late February 2024, the total price of the 62-square-meter unit on the same floor and of the same type dropped by about 400,000 to 500,000 yuan, and the unit price per square meter dropped by 15%. The developer reduced the price at will.

In response to this, the Changping District Housing and Urban-Rural Development Committee stated that due to the impact of cyclical price fluctuations in the real estate market, there have been price reductions for some 62-square-meter houses in the project with lower locations and floors. If the developer promises that the price of this house will not be reduced, citizens can provide relevant evidence. If it is verified that the project has violated regulations, our committee will take corrective measures against the company in accordance with relevant laws and regulations, and citizens can also protect their legitimate rights and interests through legal channels.

Overall, after the gradual withdrawal of property market control measures, housing prices in various regions will become more differentiated and market-oriented in the future. Chen Wenjing believes that first-tier cities still face downward pressure on housing prices in the short term, but the population and resource agglomeration effects continue. With the further optimization and adjustment of restrictive policies, the policy effects may gradually emerge, and housing prices will still have support and are expected to gradually bottom out and recover.

"Among second-tier cities, housing prices in core cities are expected to bottom out, and companies in ordinary second-tier cities are still expected to cut prices for promotions, and the downward trend in housing prices may continue in the short term." She said that the release of housing demand in third- and fourth-tier cities is slow, and the support for housing prices is weak, and housing prices may continue to bottom out. Overall, the current bottoming out of housing prices still requires continued policy efforts.

(This article comes from China Business Network)