Central Planning 101: Housing "Shortages", Price Distortions Appear as Cities Limit Prices

Chinese are waiting in line for days for a chance to buy homes priced well below market. Tens of thousands sign up to purchase a few homes and buyers put up millions of yuan in order to qualify for housing lottery tickets. Aside from making the housing situation worse by creating artificial shortages, these policies are also creating distortions in real estate data as the government successfully suppresses new home prices, but in some cities, existing home prices continue roaring higher.

iFeng: 南京775套限价房引1.25万人抢购 报名通道一度瘫痪

After consulting with the sales office, Ms. Liu was informed that the online registration system had collapsed due to an influx of large numbers of customers and was temporarily changed to on-site registration. At 6 o'clock on the evening of the 29th, Ms. Liu rushed to the sales office located in the southwestern part of the river. At this time, the team had 10 lines and there were more than 10 buyers in each line. After submitting the relevant materials and photographing the project by the real estate staff, the registration process was successfully completed. At 9:00 that evening, the online registration channel for the project returned to normal.

After half a year of “discarding food,” Nanjing Hexi finally had 4 properties for sale, and 775 hardcover houses will be listed at the beginning of June. "This property has a lot of 880 square meters of small units, the largest apartment but also only 128 square meters, the average price of the southwest of the river is still about 35,000, three or four million can buy a suite, can be said to be the lowest purchase threshold in Hexi The cost of capital verification was relatively low at 2.3 million yuan. The other three properties were all large-sized units with a high total price. The capital verification amount was more than 4 million yuan, we had much more and we couldn't get it, said Ms. Liu.

There are not a few buyers who have the same ideas as her. At 9:00 am on May 30th, after registering for a full day, all four real estate registration channels were closed. Thang Long Tian Hui Real Estate received a total of approximately 6,700 customer registration applications. However, many people have registered online and offline. Therefore, the final registration data is still being combed, and is expected to be around 5,000.

Thang Long Tian Hui Real Estate is about to launch 262 suites, roughly calculated by 5,000 groups of customers, with an average of 19 groups buying a suite. The probability of buying is only about 5.2%.

Hexi is a hot spot in Nanjing's property market. The price limit policy is still strictly enforced in this area. First, the price gap of second-hand housing is very different. Because of this, the market's mentality of “buying and earning” for new houses in Hexi has only increased, and “a room is hard to find” and the scenes of buying houses such as Zhongcai have become increasingly fierce.

Some buyers have formed buying groups to increase their chances of winning a home.

The promotion of a new real estate purchase group came out with such information: In order to improve the success rate, there are buyers to raise funds to invest 36 million yuan registration to take 9 numbers to participate in the purchase of a shake. What's more, raise 40 million yuan to register and get 10 numbers!

The reporter was informed that from March 1st onwards, undergraduates under the age of 40 can directly settle in Nanjing. After the implementation of the policy, they have attracted a lot of demand from the outside world, and they have also stimulated a large number of outside buyers to come to Nanjing. A homebuyer from Yancheng raised 10 million yuan to “support” the daughter who had just settled in Nanjing to join the housing lottery. However, he revealed to reporters that after going to Hexi for two new property developments last weekend, he found that the product was not ideal. The 140-square-meter apartment was made into two rooms, and the other home was elevated. Or wait for the next batch."

In April of this year, when a real estate property opened in Wuhan, there were home buyers who were carrying a quilt for 1 km.

Wuxi, a real estate project recently pushed 443 suites source, the average price of 11,000 yuan / square meter, significantly lower than the surrounding housing prices, temporarily attracting thousands of buyers. Many people took their chairs, quilts, water and food and spent 3 days and 2 nights outside the sales office.

In May, the opening of a real estate development in Chengdu, the number of more than 1,000 registered suites actually exceeded 70,000 people, and the number of home-buying teams stretches for several kilometers.

Ma Guangyuan, an economist, believes that the reason for the madness of the property market is very simple. It is still the inverse price of new and second-hand housing caused by the price limit. For example, the four seasons of Hangzhou real estate China Huaxia are priced at 26,000 yuan per sqm, while the second-hand property from China Coast, which is only 2 kilometers away from Huaxia, has a unit price of 52,000 yuan.

Housing lotteries also entice speculators.

China Daily: Housing lotteries not best way to check prices

The authorities may believe that housing lotteries are a way to reduce manipulation and other corrupt practices in the real estate sector, but it is unfair to people desperate to buy a house, because they have to depend only on their luck to succeed in their endeavor.

Can housing sales through lotteries prevent housing prices from rising? The problem is, when it becomes difficult for an ordinary person to qualify as a "legitimate" homebuyer, even those who don't need to buy a house immediately join the pool of homebuyers, which will further widen the imbalance in supply and demand in the real estate market.

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Government policies to cool the mainland’s real estate market including controlling prices and supply have drawn more panicky buyers to snap up flats, making the supply/demand imbalance more severe. Across the country, local authorities in cities including Shanghai, Hangzhou, Qingdao and Changsha required developers to hold buyer lotteries.

“As I got ever more impatient, my husband and I began to register as intent buyers whenever a new project was released on the market,” Zhang said. “We even didn’t bother to find out where the projects were.”

After 14 unsuccessful lotteries, Zhang finally won the chance this March to buy a suburb flat at a price equivalent to a downtown pre-owned flat a year ago. Although the property was 18 kilometres away from her office, she paid up, however reluctantly, for the 120 square metre unit in Shuangliu district – where the airport is located – at a price of nearly 10,000 yuan (US$1,580) per sq m.

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“I’ll give you the information within 10 minutes after the project wins approval for pre-sale,” the salesman said. “Then you’ll have six to seven hours to come here to go through all the procedures. You’d better take public transport because I’m afraid there’ll be a traffic jam by then.”

Price controls set by the local government have capped the project’s selling price at around 10,000 yuan (US$1,575) per square metre, a substantial discount to the 18,000 yuan per sq m for pre-owned homes in Pinghailinfeng. Chinese developers typically release projects to market in phases, and normally prices increase with each successive release.

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iFeng: 限价之下，新房价格最失真的那几个城市！

Judging from the difference in cumulative growth in the prices of existing home prices and new home prices over the past one-and-a-half years, the three cities in Wuhan, Wuxi, and Hangzhou have the largest differences. They are 10.5%, 10.2%, and 10.1%, respectively, indicating that while new home prices were suppressed, the price of existing homes still maintained relatively high growth. In other words, after the government introduced the "price limit order," new home prices have become more distorted. In addition, the difference between the six cities of Qingdao, Shenzhen, Fuzhou is between 5-9%, and the difference between the eight cities of Urumqi, Chengdu and Huizhou is between 1-4.5%.

"Limit orders" as the government's short-term control measures are not sustainable. The long-term stable and healthy development of the property market requires long-term real-estate mechanisms as a support. By studying the regulation and control of "limit orders" in various places, we can find that the true supply and demand relationship in the new housing market is distorted, which will help restore a more real market. At the same time of subsequent adjustment and control, increase the supply of new houses, curb unreasonable demand for home purchases, investigate and chaos all kinds of chaos in the new home sales market, and speed up the cultivation of the housing leasing market, all will fundamentally resolve the contradiction between supply and demand in the market and promote the healthy development of the industry.