WORLD PROPERTY CHANNEL ®

Shanghai, China

It was bound to happen. The Chinese government has been predicting it for months. Now the first wave of discounted home prices has hit the country.  More of the same is on the way, according to various analysts who regularly track the housing industry in China.

The discounts may stave off the long-predicted residential market bubble implosion in that country.

Overseas Property Professional (OPP), a London-based financial news organization, reports Shanghai-based Greenland Group has started to offer price discounts of up to 12% on residential units in the city as other developers find sales harder to find.

Greenland has been marketing housing in Shanghai at RMB 16,000 per sqm about $2,468 US per square meter) according to data released this week by the China Real Estate Information Corp. (One square meter is about 10.76 square feet).

Prices were RMB 21,500 per sqm last year on the same project. Other developers including China Overseas Land & Investment, Country Garden Holdings and China Vanke are also now offering residential properties at lower prices.

Transaction volumes have dropped to a record low in Shanghai the China Daily reported this week and the government may still be considering further curbs, but officials have remained largely quiet over the past couple of months as they wait to see the outcome of previous measures.

OPP reports that according to China-based property research firm E-House's research institute, Chinese developers' cash flows would suffer the biggest blow probably in the third quarter of this year, by which time more will have to lower prices.

Analysts also consider Q3 the "perfect" time for large-scale price cuts across the country, according to the National Business Daily.

"In the first 5 months, only a few developers posted decent sales results. Most of the rest will ultimately have to bring their price levels down a few notches, while large developers tend to take the early initiative under pressure to fulfill full-year targets," Centaline Property's senior research manager Liu Yuan told the National Business Daily this week.

China Index Academy's China Real Estate Index System (CREIS) monitors property markets in 35 key domestic cities, 60% of which showed growth in housing transactions in recent weeks. Guangzhou and Wuhan posted the biggest weekly increases, up 160.74% and 72.54%, respectively.

OPP reports CREIS also recorded a 0.53% month-on-month rise in China's national 100-city index in May, with home prices in the top 10 cities rising by only 0.11% on an month-on-month basis.

The year-on-year price monitor at CREIS rose by 3.94% in the 12 months to May.

"The data seems to suggest that the Chinese residential market is peaking, and that a more sluggish outlook is increasingly likely," according to OPP.

The Wall Street Journal found residential property prices in nine major Chinese cities are already falling.

According to Dragonomics, home prices in nine major Chinese cities that it tracks fell by 4.9% year-on-year in April.

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