Despite enticing smiles from attractive sales agents who beckon visitors to an exhibition for a new property launch, the cavernous hall in suburban Beijing remained virtually empty for hours at a stretch. In contrast to the blistering summer heat outside, the languid sales campaign inside the air-conditioned hall reflects a chill that is spreading across China’s real estate market. The government’s nearly 20-month tightening campaign has resulted in growing inventories of unsold homes and higher mortgage costs -all in a delicate attempt to avoid a property bubble and guide red-hot home prices lower without causing the market to implode and destabilise the economy. “We will not cut prices in the next six months,” boldly proclaims Cui Fan, a sales agent from Jingxu Real Estate Development Co, which offers non-furnished residences more than an hour from downtown Beijing at 19,000 yuan, or nearly $3,000, per square metre. While such bravado was rewarded in the past when the property market seemed to only go in one direction, many analysts are starting to question that assumption, and increasing numbers of would-be home buyers are perched on the sidelines, hoping prices will fall. “Most developers agree that cutting prices is the trend. They just need to decide the right extent and catch the best timing,” said Sunny Liu, a director at the China Index Academy, serving developers and institutional real estate investors. Banks’ clampdown on lending, part of Beijing’s tightening of monetary conditions to rein in inflation, as well as a surging supply of so-called affordable housing for low-wage earners will push prices downward, he said. He’s not alone in his outlook. Six of eight property analysts polled by Reuters in the past two weeks expect prices to fall during the rest of the year. Five of them expect a drop of less than 10 per cent, with only one predicting larger declines up to 20 per cent. The other two forecast prices could actually rise further, by another 5 per cent. A sharp price slump is seen as unlikely for now given overall demand is still strong, fueled by massive migration from rural areas to cities, and bank deposit rates remain relatively low. Banks’ own stress tests in 2010 showed they can withstand a home price fall of up to 50 per cent, which would only result in a rise in non-performing loan ratios of a few per centage points, though some economists are sceptical that those tests were rigorous enough. To be sure, China’s real estate market has consistently defied earlier prognostications of a crash or even a pullback. What’s different this time around, some analysts say, is that a string of negative factors is finally coming together that could stall or reverse the relentless climb in home prices. As Beijing gradually turns the monetary tightening screws, some banks have stopped issuing mortgages altogether, preferring lending that can fetch much higher interest rates. On top of that, three official interest rate rises so far this year have pushed mortgage rates to a three-year high of more than 7 per cent. And then last week, Beijing announced the extension of harsh buying restrictions to dozens of smaller cities. “The property market correction will deepen,” Zhao Qiang, Shen Aiqing and Xu Junping, analysts with GF Securities, predicted in a research note. “The current stalemate will be broken and prices will start to fall in the third quarter.” They contend that as Beijing remains fixated on fighting inflation, which hit a three-year-high in June, the property market will be squeezed and prices may start to fall. Lily Chen, a newly married office worker in Shanghai, is typical of potential home buyers who have been priced out of the current market and forced to rent. “We’ll wait. Prices are not coming down yet and mortgage rates are too high,” she said. Record home prices are forcing more and more Chinese young couples to accept the unhappy condition of “luo hun,” marrying without a home, something that in the past was unacceptable. From / Gulf today