Thursday, October 27, 2011

Chinese Real Estate Behaving Badly --- Again (MacroBusiness)

Shanghai outlaws property discounting

Chinese property developers have been in trouble for the best part of a year.  Recently the penny dropped and many began cutting prices. Then guess what? People who already owned properties got cross and, in Shanghai, went to  smash the showroom and sales office of a developer offering 30% discounts on flats.

But China is, after all, run by a Communist Party with a love of  intervention and distorting the market with weird price controls from time to time. And yesterday Mingpao reported that the Shanghai government has banned China Overseas Land (688.HK)  from cutting its prices by 30%.  The regulator reportedly said that such a discount is “obviously violating the regulation”, and  now any projects which are offering more than 20% discount should be re-filed to  the regulators before sales.

So there you have it, property developers have been squeezed  as volume dry up, and just as they finally face the reality to cut prices, the  government helps to dry up the volume once more by banning price cutting so that  they can’t sell as many as they would have wished.  Socialism at its best.

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