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Recently, a residential community in Wuhan was under debt pressure and the developer used part of the housing to mortgage to the construction party. In order to recover the funds, the construction party recently sold the “mortgage housing” at a low price. This caused the housing in the building to be sold at a price of 12,500 yuan per square meter instead of the registered price of 23,000 yuan per square meter.

In response to this, the Wuhan Housing and Urban Renewal Bureau said in a response to the media that "Wuhan has not issued relevant policies to limit the decline in housing prices. Developers make their own decisions."

It is not just Wuhan. More and more cities have explicitly cancelled the price guidance for commercial housing sales. According to statistics from the China Index Academy, since 2024, Zhengzhou, Shenyang, Lanzhou, Ningde and other cities have clearly stopped implementing the price guidance for new commercial housing sales, that is, canceled the sales price limit. Yangjiang, Zhuhai, Wuhu and other places have optimized the price limit policy, such as shortening the time interval for adjusting the registered price and canceling the price difference limit on the floor.

The real estate markets in many places have cancelled the "price limit" for new homes. What does this mean?

Picture/TuChong Creative

Will the fifteen-year price limit be withdrawn?

As a means of housing price regulation, the commercial housing sales price registration system has been implemented since 2010. It is a system that came into being during the period of rapid development of my country's real estate market.

Wang Yuchen, chief attorney at Beijing Jinsu Law Firm, told China Newsweek that when developers set the price of a property for the first time, they need to file the sales price with relevant departments before they can sell it to the public after obtaining pre-sale permits for commercial housing and registering sales of existing properties.

Looking back at the commodity housing sales price filing system, its introduction has a certain policy background. Zhao Xiuchi, dean of the Beijing-Tianjin-Hebei Real Estate Research Institute of Capital University of Economics and Business, vice president and secretary general of the Beijing Real Estate Law Society, told China News Weekly that the new home price limit policy is based on the phenomenon of insufficient supply and rising housing prices in the housing market, and is a corresponding policy introduced to curb the rapid rise in housing prices.

In 2009, the construction area and newly started construction area of ​​China's real estate market reached historical highs. The land market also saw dramatic changes, with unsold land in the first half of the year and frequent land kings in the second half of the year. In 2010, the property market continued to heat up, and some cities saw too high a proportion of investment demand and too fast a rise in housing prices. Against this background, the commercial housing sales price filing system came into being.

It can be said that in the past when the market was hot, the price limit policy was of great significance to stabilizing land prices and housing prices.

It is worth noting that some price limit policies limit both price increases and price decreases. From the second half of 2021 to the first half of 2023, under the downward pressure of the property market, many local governments issued "price reduction orders". According to incomplete statistics, at least 22 cities (or districts) including Heze, Shandong, Yueyang, Hunan, Kunming, Yunnan, Tangshan, Hebei, Shenyang, Liaoning, Jiangyin, Jiangsu, and Zhuzhou, Hunan have issued relevant regulations requiring that newly built commercial housing should not be sold at a discount at will.

For example, in June 2022, multiple departments in the Pingtan Comprehensive Experimental Zone in Fujian jointly issued the "Notice on Further Standardizing the Commercial Housing Sales Market Order in the Experimental Zone", which mentioned that when real estate developers sell commercial housing, the actual sales price must not exceed 15% of the registered price. If it exceeds the prescribed range, online signing and registration will not be processed.

Chen Wenjing, director of market research at China Index Academy, told China News Weekly that since the second half of 2021, with the changes in the real estate market environment, the negative impact of the price limit policy has become increasingly prominent. Developers are unable to adjust prices according to real market conditions, resulting in price inversion between new and second-hand houses in some areas, which not only increases the difficulty of purchasing houses for real housing needs, but also fails to reflect the real market situation, violating the original intention of the policy.

The price cut limit has put some pressure on the sales of new homes. Especially in the first half of 2024, in some cities, second-hand homes have caused a significant diversion impact on new homes, because second-hand home owners have made greater concessions at the housing price level, which has produced a certain substitution effect, leading to a widening of the price gap between first-hand and second-hand homes.

Data from the China Index Academy shows that in the first half of 2024, second-hand home prices in 100 cities fell by 3.61% in total, an increase of 0.87 percentage points from the second half of 2023; new home prices in 100 cities rose structurally by 1.24%, an increase of 0.99 percentage points from the second half of 2023.

Compared with new homes, the transaction volume of second-hand homes, which are traded for price, is relatively strong. According to CRIC data, in the first half of 2024, the cumulative transaction volume of second-hand homes in 20 key cities across the country fell slightly by 7% year-on-year and increased by 5% month-on-month, while the cumulative transaction volume of new homes fell by 38% year-on-year and 21% month-on-month.

Bringing housing prices back to the market

From a practical perspective, allowing housing prices to return to the market will be more conducive to the healthy development of the real estate industry.

Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Provincial Institute of Urban and Rural Planning, told China News Weekly that on the one hand, some developers have slashed prices or reduced prices in disguise for promotional purposes, making the original price limit guidance meaningless; on the other hand, giving developers the power to freely adjust prices reduces the redundant process of secondary application conditions, which is conducive to developers better exchanging price for volume and alleviating pressure on the capital chain.

In the past, under the new home price filing system, it took a long time for developers to adjust new home prices. China News Weekly found that before the relevant optimization policies, provinces and cities had different regulations on the adjustment period of new home filing prices, generally ranging from 3 months to 1 year. For example, Sanya City in Hainan stipulates that commercial housing projects that have been approved for price filing, in principle, cannot increase the filing price within one year.

The adjustment cycle of the registered price has greatly increased the time cost of new home sales. When sales are hindered, it also brings considerable pressure to real estate developers.

Not only that, the cancellation of price limits on new homes is also seen as an important step in restoring commercial housing to its commodity attributes.

Zhao Xiu Chi introduced that according to the spirit of Document No. 14 of the State Council in 2023, a housing supply system of "security + market" should be established, with affordable housing and commercial housing running on two tracks, each doing its own thing. Affordable housing plays a bottom-line role, commercial housing should meet diversified housing needs, commercial housing should return to commodity attributes, and housing prices should also be determined by supply and demand.

Wang Yeqiang, a researcher at the Chinese Academy of Social Sciences and director of the Real Estate Committee of the China Urban Economics Society, further explained that under the "market + guarantee" dual-track system, most of the rigid needs are solved through guarantees. In the case of a significant reduction in the size of the new housing market, improving the housing market system and giving play to the role of the price-oriented mechanism are of great guiding significance for building a new real estate development model.

Take Zhengzhou as an example. After the policy adjustment, the restrictive real estate policies were completely lifted and the commodity housing market returned to a highly market-oriented operation. At the same time, Zhengzhou's talent apartments and allocated affordable housing were vigorously promoted, and the dual-track operation pattern of "affordable housing + commercial housing" was gradually established, which accelerated the formation of a new model for real estate development in Zhengzhou.

Under the new development context, canceling the price limit mechanism is not only conducive to "destocking", but also responds to the "good housing" policy.

Chen Wenjing added that in the past two years, regulatory authorities have repeatedly stressed the need to build "good houses", which also requires matching policies to support it. After the price limit for new houses is lifted, the return of prices to the market will be more conducive to companies creating good products that meet local housing needs.

Still need to pay attention to market feedback

The price registration system for newly built commercial housing has been implemented at the national level for 15 years. It has a strong execution inertia and is relatively important in the real estate regulation system. How the price registration system can be gradually phased out and how the price limit policy can be smoothly transitioned have also become issues that need to be explored and resolved in practice.

In the process of leaving prices to the market, supervision plays an equally important role. "Local governments should formulate relevant sales guidance prices. Whether it is new or second-hand houses, there should be an anchor price," Li Yujia suggested.

Wang Yeqiang told China News Weekly that if supervision is not in place, developers may violate regulations, which will affect the delivery and confirmation of housing rights. "Each city should pay attention to preventing market risks and avoid causing market panic in the process of implementing policies based on its own situation."

China Newsweek noted that citizens from many places posted on the People's Daily leadership message board demanding compensation because developers had cut prices.

In response to messages from homebuyers who said that real estate developers' price cuts were harming their own interests, Guangzhou's Nansha District stated: According to relevant regulations, developers can enjoy the right to independent pricing based on market realities, and register or adjust prices with the housing and construction department; the People's Government of Baoding City, Hebei Province stated: Commercial housing prices are market-regulated prices, and developers can independently determine sales prices based on market conditions and supply and demand. Homebuyers and developers can negotiate to determine the final sales price of each house and include it in the contract between the buyer and the seller.

Wang Yuchen said that according to current legal provisions, developers' sales behavior is a market behavior, and sales prices are usually affected by the market, so it is difficult for homebuyers to get support for their claims for compensation or compensation simply because the developer reduced the price after they purchased the property. However, homebuyers can choose to communicate directly with the developer and check whether there are any clauses related to price reduction compensation to solve the problem.

Facing the new changes, Wang Yeqiang believes that the cancellation of the price limit for new homes is essentially a return of housing prices to the market, and buyers need to look at housing price fluctuations more rationally and not blindly follow the trend. "The cancellation of the price limit policy may lead to a short-term decline in the prices of new and second-hand homes, but in the long run, market-based regulation will help further stabilize housing prices."

As second-tier cities are successively canceling the price limits on new homes, many experts believe that first-tier cities will also choose to follow suit.

"It is actually more necessary for first-tier cities to cancel price limits on new homes, especially for some high-quality, high-premium products. If the price limits are not canceled, the costs cannot be made up. On the other hand, property prices change frequently with the market. If the price limits are not canceled, a complicated price adjustment application process will be required, and real estate developers in first-tier cities will have to pay greater adjustment costs." Li Yujia believes.

Zhao Xiu Chi said that canceling the price limit for new homes is a development trend and a market rule, and first-tier cities are no exception in practice. After all, all cities face the same problem of destocking in terms of housing price regulation.

References

“Malicious price cuts are a thing of the past, as many places cancel price limits on new home sales”, 2024-08-09, The Paper

"Many places have withdrawn from the real estate market with price limits, and homebuyers complain that price cuts are useless", 2024-08-12, Jiemian News

"Can the "price protection and price drop limit" in some places stabilize the property market?", 2023-12-12, China Business News

Author: Yu Shengmei

Editor: Yu Yuan