Real Estate Rage Spreading As Developers Grab Golden Week Opportunity, Will 2019 Be the Year of Defending Rights?

Chinese developers are recouping capital amid tight credit conditions and they're doing it by slashing prices on new homes. Following the Mid-Autumn Festival, there were several reports of real estate rage around the country (See Fresh Reports of Real Estate Rage Signal Turn in Chinese Housing Market).The week ending Sunday, October 7 is Golden Week in China, the week-long holiday attached to the October 1 National Day. These holidays fall in what the real estate industry calls "Gold September and Silver October," when developers typically see strong sales. This year sales were weak in many parts of the country, forcing steeper price cuts than usual. Steep cuts that have been associated with prior turns in the real estate market.

Since price cutting triggers real estate rage, developers try to make stealth cuts. They adjust the property, upgrading the furnishings or giving away a parking spot for free to keep a price level, or downgrading the furnishings to cover the price cut. Slashing prices outright is a last resort because it induces anger from homeowners who see the value of their home cut by as much as one-third overnight.

Defending Rights

Real estate rage is dubbed defending rights (维权) in China. In some cases, homeowners may have legitimate grievances. Developers will promise to build amenities such as a kindergarten as part of a development. Sometimes these amenities come years later, if at all. Housing quality may be substandard. If developers haven't fulfilled their side of a contract, homeowners have a powerful case and the local government will get involved. In other cases, homeowners have less ground to stand on. They will demand a rebate equivalent to the price cut or they may demand their money back and return the property (退房).

Country Garden is the latest developer facing enraged homeowners "defending their rights." Here's a video from October 4 from Shangrao, Jiangxi province. Homeowners are protesting a 30 percent price cut, from 10,000 yuan per square meter to 7,000 yuan. The smash the sales office.
A protestor holds up a sign. The description below the picture says a first-phase owner still doesn't have his home and he paid 43 percent more that people buying the same property today.

Country Garden also outraged Shanghai homeowners in the Pudong area when it slashed prices from 35,000 yuan per sqm to 26,000 yuan. This protesters holds a sign that essentially translates as "Country Garden stole my hard earned money!"

I could not find an article covering this next case, but this post claims a similar protest in Jingdezhen, Jiangxi at an unnamed developer.

Here's another protest over one-third price cuts:

A news clip covering another incident at a real estate sales office. (Link: 百位业主维权回家，途经商业开幕现场被拦，现场一片混乱
Here is a related example that shows the overall social mood and attitude towards developers. A security guard employed by the developer blocked a car from entering the property late at night. The homeowner got into an argument with the guard. Several dozen homeowners came out to witness the argument and "defend their rights," prompting a response from the developer.

The flurry of protests and other anecdotal data, such as real estate agents changing professions, coincides with weaker sales data. It has analysts and media alike asking if the big turn in Chinese real estate has arrived.

Hanfeng: 黄金周楼市提前降温 房地产市场要变天?

In fact, the industry has long expected the “Golden September and Silver 10” to cool down significantly this year, besides the first- and second-tier cities such as Beijing, Shanghai, Shenzhen, Nanjing, Hangzhou and Xiamen, which are in a downturn. At present, even the third- and fourth-tier cities around Beijing, such as Langfang, Xianghe, Yanjiao, etc., have seen a sharp decline in house prices, and the transaction continues to shrink.

In addition to the cooling of new homes by the price limit policy, the second-hand housing market, which reflects the real situation of the market, is also showing a deteriorating trend. According to the data of the Shell Research Institute, the monthly listing price of 100 cities fell by the number of cities. From March to May this year, it was 19 per month, 25 in June, 19 in July, and suddenly increased to 47 in August.

Real estate agencies are closing, agents are changing professions:

Signs of cooling: The real estate agency is closed, and the employees switch

During the National Day holiday this year, there are very few real estate agents working in first- and second-tier cities, usually for five days. A real estate agent surnamed Yang in Beijing once said that she sold a suite in the first half of this year. She is now focusing on her own store, and she has stopped talking about housing prices.

As early as October 2016, Xiao Yang had traveled between Bazhou, Gu'an, Yongqing and Xianghe in Beijing. Throughout 2016, Xiao Yang sold 70 houses and earned nearly 3 million in one breath. At that time, it was too easy to make money in the real estate agency. I did not expect that the Beijing-based property market was affected by the regulation and control. Since 2017, the business has plummeted and there has been no volume.

In this regard, we feel that the real estate agency reshuffle is in front of us. On the one hand, due to the recent rectification of the mediation of housing prices and rents in various cities, a number of realtors have closed their offices. On the other hand, real estate began to cool down, real estate agency business is difficult to do, and a large number of people choose to change professions. This happened as early as 2008, but now it has been staged again.

Real estate rage is another sign:

Cooling sign 2: house price reduction promotion, owner's angry rights protection

Recently, news of developers' price cuts and owners' rights protection has been continuously transmitted. Just in the past Mid-Autumn Festival holiday, a developer in Hefei chose to reduce the price of some buildings by 4,000 yuan/square meter, which immediately led the old owners to block the door of the community and pull out the banner rights. The second phase of Hangzhou Binjiang Future Coast lowered the price by 400,000. As a result, the owners of the first phase ran to the sales office and denounced the developers for “arbitrarily pricing and deceiving the owners”.

What is even more funny is that just half a year ago, Hangzhou residents complained that it was not the house price reduction, but the purchase of the house. At that time, there were thousands of people involved in the lottery in almost all the popular properties, and even 70,000 people rushed to grab the 1500 listings. Many people have been very happy with the purchase of the house, they always believe that "buy a new house, is to make money."

In this regard, we believe that more and more owners have begun to defend their rights. This also invisibly tells those speculative needs. The days of buying a house and making quick money with a closed eye are gone forever. Now the investment in the real estate market is beginning to be risky. And the cold wave in the property market has come so fast that it is impossible for all parties to foresee.

For those who haven't seen it, check out Speculators Take Over Chinese Housing Market. Data collected by CHFS showed speculators grew to 50 percent of the homebuyer market in Q1 2018. Those speculators are the most likely to return the home or even resort to jingle mail if they end up with negative equity.

Cities are seeing failed land auctions as developers turn cautious:

Third sign of cooling: Failed land auctions, housing companies cautiously take the land

According to statistics from the Central Plains Real Estate Research Center, in 2018, the land premium rate of hot cities is basically around 10%, which is significantly lower than the average premium rate of 30% in 2015-2017. From January to July 2018, the number of land auctions in the country was close to 800, and the number of land auctions in second- and third- and fourth-tier cities increased by 200% and 121% year-on-year.

Since the beginning of this year, the land premium rate has continued to decline, and the number of land flow targets has increased sharply, in stark contrast to the booming land market in the previous two years. This is mainly because the desire of real estate developers to develop land is fading. Housing companies have taken the land from the past without cost, and now they are becoming more cautious and no longer dare to take the land at high prices. The real estate market is sluggish and the land market is cooling down.

Many developers are concerned about their survival:

Cooling sign four: Developers think about how to "live"

Judging from the situation in the first half of the year, the performance of leading housing companies this year is likely to hit the best performance in history. However, housing companies are worried about the crisis of survival. In late September, the real estate industry giant Vanke held an autumn meeting in Shenzhen. The three red-and-white letters hanged at the venue were very eye-catching: Survival.

Previously, influenced by real estate regulation, since last year, in addition to Vanke and Poly, more than 18 real estate companies such as Evergrande Real Estate, Franshion Real Estate, Sino-Ocean Land, Landsea Green Real Estate, Times Real Estate, AVIC Real Estate and Longhu Real Estate have dropped the word "real estate" from their names. This means that the company is positioned to upgrade, and the housing enterprises will develop towards a diversified path in the future.

It is worth mentioning that more and more real estates entered the price cuts in the third quarter, and the discounts of developers were much higher than the previous two years. In September, the brand housing enterprise Evergrande first made a nationwide promotion discount, with a 8.9 percent discount for residential and a 60 percent discount for shops; Taihe’s project offered a larger discount, and if the purchaser purchased the entire house, the house price would be 30% discount; The city opened the "100 billion offensive" special purchase season, according to the different regions, develop different price reduction strategies.

Developer Evergrande recently invested in a car dealership as it diversifies away from property.

2019: The Year of Rage?

An article republished at JRJ.com goes further and asks if 2019 will be the year of the "defending rights" wave. Homebuyers and speculators giddily poured into developers' sales offices as they bought up property rising 30 percent in a year. They didn't check the quality of the housing or do any research. They threw money at anything and everything amid a speculative fever. The author of the piece below saw his warnings about shoddy construction and inflated prices ignored amid the bubble. Now he expects price cutting could become a real trend into 2019.

JRJ: 碧桂园降价引发业主打砸售楼处 2019全国或上演维权潮

Recently, Anhui has seen a lot of price reduction rights, but there are not many in the country. By the next year, this wave of price reduction will be hit by violent storms. Because once the price reduction trend is formed, it is easy to spread the attitude of buy rising prices and do not buy falling prices. It’s really important to stay calm in the face of the storm.

The pressure on the locality is also very high. The price increase should be controlled for fear of the bubble bursting. The price is lowered and they are afraid of trouble. But I think the market has its own adjustment needs. It will not come about because the owners have more rights to protect the market, or relax the regulation, this is impossible, bowing to a group of people who violate contracts, this is tantamount to encouraging everyone to violate contracts, it is a mess.

I have said before that, as long as the house prices have risen too much, basically the doubling of the market will end, the investment is quickly sold, do not stay in the fishtail market, it is not easy to sell in the sideways, then the long-term will fall, no Markets that only rise or fall will not be absent if they are late.

The fall of the 3rd and 4th lines is not a matter of one or two years, but a slow journey, at least five years and eight years.

First- and second-tier cities will be better. In particular, after this round of the three-fourth line rose, some people cashed in, and they took the money to buy one or two lines. However, it can't escape adjustments, especially those places where the round has risen two or three times, the decline will be even bigger, at least 30%.

Once the sentiment shift takes hold, it will continue even in the face of government rescue efforts. Officially, there is no rescue yet, but one news item from Beijing drew the markets attention: Beijing Loosens Real Estate Regulation. The city did not change policy, for for the first time in two years, it auctioned off a parcel of land with no home price restrictions attached. Evidence of a turn in China's housing market is piling up, but the final piece will be a loosening of real estate restrictions. Only a month ago, analysts were looking for real estate tightening through the end of the 2018 and even into early 2019, with some restrictions never being repealed. The government said it was cracking down on real estate "chaos" and said it would hold local governments accountable if prices keep rising. Contrast all of the above with the myriad of stories posted here over the past three months (see below). Even two weeks ago, there was worry about rising prices: China Real Estate Crackdown: New Home Prices Rise 1.5 pc in August. I expected a turn was coming, but didn't expect it would arrive barely two weeks later.

More likely, this is the final gasp of the boom. China didn't start tightening credit in earnest until after October 2017. First-tier cities aren't seeing a rebound in prices. Lower-tier cities were considered the greater risk in recent years. The government funded renovation projects were designed to slash inventory with bulldozers. The government destroyed too much housing inventory, lower-tier cities did not restrict prices as early as first-tier because of the inventory fear. Lower-tier cities are experiencing the peak of the boom now because government policies gave it one final push before the turn. Price follows volume and sales growth is slowing though, thus eventually the lower-tier cities should cool.

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