Buyers forfeit deposits to exit deals
Developers left facing unsold inventory as tighter loans and falling markets hit sentiment
Yvonne Liu
Jun 18, 2008 , SCMP
Growing numbers of would-be home buyers in Beijing and Shenzhen are choosing to forfeit their deposits and withdraw from offers to buy homes as the uncertain outlook for the mainland property market erodes confidence.
Home buyers in Beijing have the right not to proceed with purchases and return properties to developers during a "cooling-off" period of seven days, but any deposits that typically range from 20,000 yuan (HK$22,668) to 30,000 yuan will be lost.
In Shanghai, where agents said buyers had also begun cancelling deals since last month, the cooling-off period is two days and if buyers withdraw from their contracts within this period their deposits are returned.
While the system gives buyers a second chance to reconsider their investments, it may become a nightmare for developers.
According to data compiled by the Beijing local government and quoted in the Beijing Morning Post, 0.72 per cent to 3.92 per cent of buyers of four large residential projects in Beijing did not proceed with their purchases since early this year.
The situation has since worsened, said Li Wenjie, the general manager of Centaline (China) in the city. "Investors have lost money on the stock market and now they worry that property prices will drop further because of the falls on the stock market," he said.
Ten new residential projects in Beijing received sale consents in April and last month and data shows that 2.8 per cent to 8.72 per cent of the buyers did not proceed with their purchases and returned the properties to the developers, Mr Li said.
"However, it would be unusual to see the percentage increase by much more than this, or, say, to more than 5 per cent [on average]," he added.
Many of the buyers now withdrawing from proposed deals were middle-income investors who had suffered the most as a result of the declines in share prices. Most had bought properties around the Fifth Ring Road for 10,000 yuan per square metre, he added.
In Shanghai, Jessica Jiang, a deputy manager at Century 21, said the situation was not as bad as Beijing as property prices did not rise sharply last year. "Property prices remained stable after the cooling measures in October last year. And the price war in the primary market is not as serious as Beijing or Shenzhen," she said.
However, in Shenzhen and Guangzhou property prices retreated sharply after the cooling measures. According to a research report by DTZ, property prices in Shenzhen and Guangzhou dropped 7.3 per cent and 3.3 per cent respectively in the first quarter. But prices in Beijing and Shanghai rose 2.7 per cent and 1.8 per cent respectively.
Andy Lee, the general manager for Centaline (China) in Shenzhen, said that the city did not offer cooling-off periods for buyers. About 5 per cent of those who bought properties in the peak seasons of last year were in default for units recently, he said.
He estimated more than 50 per cent of the buyers during the February, March, June and July peak seasons were investors.
New home prices in Shenzhen have dropped 25 per cent to 30 per cent since October last year. A project in Nanshan district in Shenzhen even cut prices by more than 40 per cent to about 12,000 yuan per square metre since the fourth quarter of last year.
Mr Lee said many investors expected the consolidation in the property market would continue.
"They expect the price war in the primary market will continue as tighter conditions on property loans and weak buying sentiment force developers to adopt aggressive price discounting to lure buyers," he said. "Now they are trying to stop their losses."
In Guangzhou, Centaline (China) general manager Ellis Wong Hin-ming said a similar situation had arisen where more than 30 per cent of buyers at Evergrande Royal Scenic Peninsula developed by Evergrande Real Estate Group (SEHK: 3333) had returned the units to developers.
However, the situation was better than in Shenzhen as the growth in Guangzhou property prices last year was lower than in Shenzhen, Mr Wong said.
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