Can the "price limit order" be lifted?, Buying a house through group buying in multiple locations is not limited by the decline in housing prices

The recent news of a real estate company in Zhuhai selling houses at a 50% discount has attracted industry attention. According to media reports, the Jinwan Baolong City project in Zhuhai is sold at a 50% discount. In 2021, the highest recorded price of the property was 28000 yuan/square meter. Recently, the developer sold it at a discount of 14000-15000 yuan/square meter.

According to a staff member of the Zhuhai Housing and Urban Rural Development Bureau, "selling houses at a 50% discount" is not true. In the current market environment, it is normal for real estate companies to lower their record prices. However, the rumored "selling houses at a 50% discount" is a comparison between the lowest recorded price in the current record price and the highest recorded price two years ago. They believe that "this is not comparable.". At the same time, a staff member of the Jinwan District Housing and Construction Bureau in Zhuhai responded to the public that the price reduction and promotion approach adopted by the project in question was a reasonable market behavior.

According to the external response of developer Baolong Real Estate, not all properties are discounted so much. "It's like a merchant doing a promotion, where the price of a special offer is exaggerated and advertised." Many real estate companies have the phenomenon of debt extension, and the company has been persistently working hard to pay off, so it's normal to adjust prices and sell properties.

Although the rumor of selling a house at a 50% discount may have some inaccuracies, selling at a reduced price is indeed a fact.

Recently, the competent media of the Ministry of Housing and Urban Rural Development, China Real Estate News, stated in an article that "developers should be given greater autonomy in pricing and allowed to engage in self rescue through price reduction promotions to quickly recover funds."

This is interpreted by the industry as a sign of the loosening of the "price limit order", which has also sparked discussions on whether the "price limit order" can be lifted.

In the context of a cooling market,

What is the effect of the "price limit order"?

The introduction of the price limit order can be traced back to 2021.

Chen Xiao, Senior Analyst at Zhuge Data Research Center, pointed out that in the second half of 2021, the cooling trend of the real estate market has become prominent, and many real estate companies have started a wave of price reductions in order to maintain diversification. In this context, in order to achieve the three stable goals of "stabilizing land prices, stabilizing housing prices, and stabilizing expectations", maintain the stable and healthy development of the real estate market, and prevent the downward market expectations caused by price reductions, many governments have successively issued "price limit orders".

According to incomplete statistics from Zhuge Data Research Center, since 2021, over 20 cities including Changchun, Yueyang, Jiangyin, Shenyang, Tangshan, Kunming, Zhuzhou, Zhangjiakou, etc. have issued "price limit orders". For example, in August 2021, the Tangshan Municipal Government interviewed relevant officials from 10 real estate companies, including China Resources Land, Zhonghai, Vanke, etc., and requested that they not maliciously lower prices, otherwise they would not be allowed to sign online. In addition, multiple places have issued documents requiring new housing projects to be sold at no less than 85% of the recorded price.

Zhuge Data Research Center mentioned that the cities that have issued price limit orders are mainly third - and fourth tier cities, as well as some weak second tier cities. These cities are mostly cities with population outflow, and the driving force for housing price increases is insufficient. Faced with the overall downward pressure of the industry, the market is difficult to resist, and real estate companies have adopted price reduction sales to achieve sales revenue.

The price limit order is considered a mandatory measure taken by the government to stabilize housing prices in a specific market environment. The use of mandatory restrictive measures to curb the decline in housing prices has played a certain positive role in preventing local project price reductions, and has achieved certain results in a good market situation.

In the context of a cooling market, the "price limit order" has to some extent maintained the stability of new market prices.

According to the 70 city housing price index data from the National Bureau of Statistics, as of July 2023, new house prices have decreased by 0.23% month on month, while second-hand house prices have decreased by 0.47% month on month. The price drop of new houses is significantly lower than that of second-hand houses.

However, the price limit has to some extent affected the progress of real estate companies in exchanging price for quantity. According to the 50 real estate companies monitored by Zhuge Data Research Center, the sales amount from January to July 2023 was 2.7 trillion yuan, a decrease of 10.74% compared to the same period last year; The sales area was 162 million square meters, a year-on-year decrease of 16.63%. The sales side of real estate companies continues to be under pressure, with slow turnover and difficulties in collecting payments.

Discounts on group buying houses can break the limit of record price decline

Disguised loosening of restrictions on price drops

From the current situation in various regions, although no city has explicitly lifted the "price limit order", many governments have taken flexible measures to hedge against it.

Chen Wenjing, Director of Market Research at Zhongzhi Research Institute, pointed out that since 2023, many regions have adjusted the magnitude of housing price reductions. The policies involve relaxing the downward range of recorded prices for commercial housing, implementing price discounts for new citizens, talents and other groups, and adjusting the lower limit of prices for unsold projects. At the same time, more than 20 cities have introduced policies to support group buying of commercial housing in 2023. Developers can provide buyers with certain price discounts, and some cities do not include preferential prices in the range of the recorded price decline of commercial housing.

In the industry's view, although no city has explicitly lifted the price limit, some cities have indirectly relaxed the price limit by excluding group buying discounts from the range of housing price declines.

Taking Ya'an City, Sichuan Province as an example, on August 1st this year, the Economic and Technological Development Zone of Ya'an City issued a notice on the issuance of 15 measures to support the demand for rigid and improved housing and ensure the stable and healthy development of the real estate market, in which some flexible adjustments were made to the "price limit order". It is proposed to fully support real estate development enterprises in actively carrying out group buying activities targeting party and government organs, employees of enterprises and institutions, medical personnel, teachers, migrant workers, and workers from the third district who work outside. The preferential prices for group buying by development enterprises are not included in the range of the decline in the recorded prices of commercial housing.

In fact, this measure by the Economic Development Zone of Ya'an City is not the first to appear.

According to incomplete statistics from Zhuge Data Research Center, about 20 cities have introduced policies to support group buying of commercial housing since the beginning of this year, such as Chuzhou in Anhui and Ziyang in Sichuan, among which preferential prices are not included in the range of recorded price drops. This is a relaxation and concession made by the local government on the basis of the "price limit order".

Can the "price limit order" be cancelled?

It is worth mentioning that recently, the competent media of the Ministry of Housing and Urban Rural Development, China Real Estate News, mentioned in an article that "developers should be given greater autonomy in pricing, allowing them to carry out self rescue through price reduction promotions to quickly recover funds." This is interpreted by the industry as a sign of the loosening of the "price limit order", which has also sparked discussions on whether the "price limit order" can be lifted. At the same time, the Economic Observer also released an article titled "It's Time to Release the Price Limit Order" on housing prices.

So, can the "price limit order" be cancelled, and what impact will cancellation have?

Chen Wenjing believes that currently, the national real estate market is still in a period of adjustment, and the overall market confidence is still relatively low. There is a strong wait-and-see attitude towards real estate demand, market performance is sluggish, and companies are slow to recover funds. Currently, multiple cities are still implementing "price limit orders", which further increases the difficulty for real estate companies to sell, hinders the withdrawal of funds, and also exacerbates the financial pressure on enterprises. In the new market environment, moderate optimization and adjustment of price limit policies, allowing prices to return to the market, will to some extent play a role in promoting demand release, which is more conducive to enterprises selling and recovering funds.

Chen Xiao also mentioned that if the "price limit order" is lifted, it may bring some positive driving effects to the entire real estate market. But if the "price limit order" is truly lifted, it may also generate some fluctuations and negative impacts. On the one hand, new home buyers receive lower prices, which exacerbates the imbalance among existing homeowners and can lead to disputes and rights protection behaviors, triggering a series of social conflicts. On the other hand, for local governments, the cancellation of the "price limit order" means that the decline in housing prices is no longer under control, which may also mean that land prices may decrease accordingly. The decline in land revenue, which is an important fiscal revenue for the government, has a significant impact on the government, and there is insufficient motivation for the government to lift the "price limit order". In addition, under the traditional mentality of "buying up instead of buying down" in China, market confidence may once again suffer, and the short-term improvement in sales may lead to a longer-term downturn in confidence.

The Zhuge Data Research Center believes that, fundamentally, housing prices should be determined by market supply and demand. However, there are many restrictive policies in the current real estate market. If they are fully liberalized in a short period of time, there will be certain risks. Therefore, the impact of canceling the "price limit order" still needs to be fully demonstrated, and the industry needs to be cautious about this.