Residential towers in Wenzhou. (Photo/Xinhua)
Wenzhou in eastern China's Zhejiang province has successfully curbed speculation in the housing market, though tighter bank lending has led to businesses struggling from insufficient cash flow. To meet demand for capital, some developers in the city have been selling their houses as major discounts, though buyers are scarce given a grim outlook for the property market.
Since the beginning of this year, house prices in Wenzhou have fallen steeply. At the end of the third quarter prices fell 0.8% from the previous quarter, representing the most dramatic drop among 70 cities across the country and sparking panic among speculative investors, Xinhua's Oriental Outlook Weekly reports.
The situation in Wenzhou is unusual as figures show that other major Zhejiang cities including Hangzhou and Ningbo have seen a rise in property prices since May this year, one market observer said.
Housing in Wenzhou is often used by investors as loan collateral; borrowing money based on mortgages and using it speculate in the property market had become a common practice.
Compared with 2009 and 2010 when the Wenzhou property market peaked, housing prices have now dropped to a more reasonable level. "In Wenzhou, if property prices have stopped rising, this means the property market has lost its value to investors and we have to pull out our money," said Lin Suhua, a 51-year-old investor.
The small and medium housing developers which dominate the city's housing market have experienced capital shortages on account of tighter bank lending since 2011. Some developers have been forced to sell off their stock at low prices. "The market lacks demand. We have not sold a single apartment over the past month," one manager at a development firm said.
About 20% of firms have suspended operations in the city, another half are not operating at full capacity.
Figures show that 4,673 industrial enterprises in the province incurred losses during the first half of this year, slightly above 23% more than a year earlier.