Market response

Beijing Centaline Property Agency Ltd. released a survey on April 18 from 5,000 prospective house buyers taken since mid-March. Of the participants, 67 percent clearly stated they would not consider buying homes any time soon.

According to the company's figures, four days after the State Council's policy was issued, second-hand housing prices in Beijing surged 40 percent, but the number of new clients dropped by 80 percent.

Figures from Beijing Real Estate Information Network showed on April 15, 483 newly built homes were transacted in Beijing, but after that, the transaction volume had decreased steadily. On April 20, the figure dropped to 291, a decline of nearly 40 percent within six days.

Zhang Dawei, head of the tertiary market research department of Beijing Centaline Property Agency Ltd., thinks each article of the April 17 policy is a deathblow to high real estate prices.

"These measures show that real estate regulation is no longer an ineffective solution, and the high property prices will not continue," he said.

Signs of the policy's effectiveness have already begun to show—a report released by the tertiary market research department of Beijing Centaline Property Agency Ltd. showed a halt to price hikes or even a decrease in prices in Beijing and some suburban areas. Half of house speculators will likely sell their homes in large quantities within three months, as more than 60 percent of house buyers are anticipating the price drops, which could be by as much as 20-30 percent in 2010.

Centaline statistics also showed within days after the State Council released the regulation, broken contracts by house buyers accounted for 70 percent of total housing-related disputes. The proportion had been less than 20 percent before the regulation was issued. The real estate market is likely to change from an obvious sellers' market to a buyers' market in the coming months.

Uncertain tendencies

Qi Fan, an analyst with Century 21 China Real Estate, thinks the release of the new regulation is a turning point for the real estate market.

Qi said that judging from the present situation, buyers will maintain their wait-and-see attitude for some time and the transaction volume will certainly drop. But it will still take time before any substantial price decreases are seen. Most real estate developers can withstand the first three months after the regulation's adoption without losing too much money. However, due to some developers' strained cash flows and project turnover speed, discounted houses haven't been totally ruled out. A few weak developers will take the lead in lowering prices and more discounts will follow.

Hu Jinghui, Deputy General Manager of 5i5j, a Beijing-based real estate agency, said the transaction volume of second-hand homes has already started to decline, but prices have not changed.

"Price adjustments in the second-hand home market will be decided by the primary home market. People are just now finding out which way the wind will blow home prices," Hu said.

In 2005, the government launched a series of policies to curb the fast growing house prices, Hu said. While the policies were powerful, the effect was poor and house prices continued to rise. The failure of the 2005 control measures was attributed to the ineffectiveness of local governments to implement the policies. It is difficult to tell how the policy will be implemented this time.

Feng Ke, Director of the Research Center of Financial Properties of Peking University, said the policy may produce some immediate effects, but the long-term effects will be limited. The measures will mainly focus on curbing house purchases for investment and speculation, but as for supplies, the amount of newly built houses will remain inadequate—and house prices will continue to rise despite government regulation.

In interviews with Beijing Review, many house buyers were pessimistic about the new regulation, since they will curb house purchases overall, including those for personal use. More people hope the government will curb speculative house purchases by raising the transaction taxes on second-hand houses, instead of curbing all house purchases. If no money can be made from selling houses, many agree that no one will speculate.