Alarmed by complaints about soaring costs and warnings China faced a possible real estate bubble, leaders began tightening controls in 2010. They raised minimum down payments to as much as 70 percent of the purchase price and imposed quotas on how many apartments one customer could buy.
Prices that had been rising at double-digit annual rates started to decelerate this year. In May, surveys by real estate companies said prices slipped by 0.1 percent to 0.3 percent from April's level, the first decline in two years.
Su Xiaoling, a sales manager in Shanghai, bought an apartment in February for 1.8 million yuan ($300,000) as an investment.
"There might be some correction in the short term, but it does not mean I lose money as long as I do not sell it," said Su, 33. "I can wait."
Investors who own multiple apartments often leave them vacant while they wait for prices to rise, prompting complaints by would-be renters about lack of supply.
China had 49 million such vacant apartments in August, or 22.4 percent of the total of 218 million, according to an estimate by the China Household Financial Survey and Research Center at the Southwestern University of Finance and Economics. That was based on data gathered by researchers who visited 28,000 properties in 2011-13 and staying in touch with owners by phone, said one of the report's authors, Yi Daichun.
Regulators say China's real estate slowdown is different from the U.S. crash in 2008. They say banks face little risk because mortgages are small and most buyers pay cash.
Private sector analysts warn, however, that real estate plays such an outsized economic role that any decline will rattle other industries.
Lending for mortgages or to developers is 20 percent of outstanding bank loans, and that share doubles if credit to construction and other related industries is added, according to Barclays economist Jian Chang.
Many investors think that China will not come out of the property downturn unscathed and some expect a "large credit event that could cripple the economy and financial system," said Chang in a report.
At least seven developers have defaulted on loans or stopped projects due to financial trouble this year, according to Chinese news reports. Fitch Ratings says real estate is the "principle source of risk" to the stability of China's financial system.
Longer term, analysts see strong demand from millions more rural Chinese who are expected to move into cities. But that might not come soon enough for some developers and the construction companies and others that depend on them.
"China's property market faces a difficult period," said Duncan Innes-Ker of the Economist Intelligence Unit in a report. "Property investment is already falling, but it will have to contract even more sharply if a severe drop in prices is to be avoided."
---
AP researcher Fu Ting in Shanghai contributed.
