The housing regulator in Kunshan, a neighboring city of Shanghai, has punished two property developers for offering too generous discounts. 

According to a document leaked online on Monday, the Kunshan Housing and Urban-Rural Construction Bureau said the developers had excessively cut down the prices of two properties without authorization. As a consequence, the authority has suspended the sales of the two properties and said the two developers’ annual credit evaluations will be negatively impacted.

Limits on housing price cuts are not exceptional to Kunshan, a county-level city in the eastern Jiangsu province. According to statistics from China Index Academy, nearly 20 cities, including Fuzhou, the capital of the eastern province of Fujian, and Dali in the southwestern Yunnan province, issued policies between May and December last year to limit the discounts property developers can offer. Developers are typically allowed to adjust prices up or down by up to 15% of the amounts they have reported to and got approved by the housing regulators. 

Industry insiders say similarly favorable discounts were offered in other cities, mostly third- or fourth-tier ones where developers deal with relatively more pressure to sell new apartments.

Kunshan introduced its “housing price reporting” practice as early as 2009. However, in the boom years of the property sector, the authority had placed more emphasis on limiting price hikes than price cuts.

When reached by Sixth Tone on Monday, agents selling the two properties confirmed that one had offered discounts of over 25% while the other had tried to attract clients with a 20% discount and a free parking space. 

“The offers were very attractive given the total price of the apartments,” said an agent with Deyou Real Estate Brokerage surnamed Wang. The prices of the two properties’ apartments range from 1.6 million yuan ($231,160) to 2.3 million yuan. 

“It’s hard to tell what discounts can be offered once the sales resume,” Wang added. 

Staff with the Kunshan housing regulator said the punishment aimed to push the developers to immediately correct their behavior and maintain the stability of the housing sector. “The unauthorized discounts have impacted the sales of the surrounding properties, which disrupted the normal order of the market,” the staff told The Paper, Sixth Tone’s sister publication.

The incident happened in the middle of a gloomy property market. In April, Kunshan saw the areas of newly built residential properties sold down by 14% compared with the previous month, which was consistent with the national trend, according to data from Zhuge Housing Data Research Center. And the average price was down by over 8% compared with March.

Lu Wenxi, an analyst at Centaline Property, said although the two Kunshan properties are not representative given their unfavorable locations, it is true that there’s a general lack of confidence in the market at the moment. 

“The significant reduction in trade volume in April has resulted in turbulent emotional responses,” he told Sixth Tone. Data from China Index Academy showed the total sales volume of the country’s top 100 property companies was down 17.4% in April from the previous month.

“The market remains in a recovery process. But to what extent it can recover, no one holds absolute confidence,” Lu added.

Editor: Vincent Chow. 

(Header image: A view of residential buildings in Kunshan, Jiangsu province, Oct. 19, 2012. VCG)