An increasing number of Chinese home buyers are forfeiting deposits and defaulting on purchase agreements due to fear that stricter policy setting will cause a sharp decline in property prices, said estate agents.
Estimates of the extent of defaults differ widely, with some media reporting that Hong Kong agency Centaline cautioned that as much as 3,000 contracts faced risks of cancellation in Shenzhen and 10,000 in Beijing in Q4, which saw a 12.8 percent increase in the cancellation rate.
However, agents interviewed by the South China Morning Post, disagreed with these estimates. “We have encountered about 50 cases recently, where buyers have decided to forfeit their deposits and walk away from contracts in view of increasing market uncertainty,” said Andy Lee Yiu-chi, head of the Shenzhen branch of Centaline.
The defaults are happening in Beijing, Guangzhou and Shenzhen, with buyer sentiment turning negative and sales volume falling by as much as 60 percent to date this month from September. Mr. Lee expects that another 400 deals could also collapse in Shenzhen.
“The market is pretty quiet as most buyers have taken a wait-and-see attitude since the government introduced tougher measures to curb property price growth earlier this month,” said Mr. Lee.
The sentiment was affected by the suspension of loans for third-home purchases, as well as by the government’s plan to introduce a real estate tax across the country without revealing any details yet.
Those buying their first home are now required to put down at least 30 percent of down payment and 50 percent down payment for a second home, up from the previous 20 percent and 40 percent, respectively. Those who already own a home are not allowed to buy more than one additional property.
The deteriorating sentiment led to a 20 percent decline in sales in the primary and secondary markets in Beijing from October 1 to October 20.
In Guangzhou, around 70 buyers cancelled deals in October and the average daily sales volume has plummeted 52 percent to 388 deals to date this month from September, according to the Guangzhou Daily.
Despite the decline in sales volume across the market, homeowners and developers were hesitant to lower their asking prices, said Mr. Lee. “There is no sign of a sharp price fall now. Normally prices will fall only if the slow sales persist for several months,” he said.