The continued tightening measures of the government and the poor autumn sales volume have forced Chinese property developers to cut housing prices nationwide, which indicates that the market is moving closer to a turning point.

Official statistics show that the housing inventory in China's first-tier cities is increasing, which is a desired downward trend for private homebuyers.

In September, 59 of a statistical pool of 70 major cities saw new home prices increase more slowly from a year earlier, compared with 40 cities in August, the NBS said in a report on its website.

According to the Centaline Property Agency, a supply of 9,152 new homes in October has added Beijing's total housing supply to 118,000 units, a new high since June 2009.

It would take 22 months to consume the inventory even if there were no new supply, said the agency.

The gloomy sales in September and October will weigh heavily on developers, as they will have to pay back banks, cover construction expenses and pay for employee bonuses during the last two months of the year, said Chen Guoqiang, vice chairman of the China Real Estate Society.

"The central government's decision to maintain the property policies is conducive to guiding market expectations and will accelerate the arrival of a drop in housing prices," Chen stressed, adding that embattled by rising debts and weak sales, developers will likely drop their prices even further to secure more sales.

Unprecedented pressure on developers

The plunge in transactions and fund constraints are pushing real estate companies to take action to court more buyers.

China Vanke, the country's largest real estate developer by market value, led the wave of sales by lowering prices of their housing projects in Beijing and south China’s Guangdong Province starting from this month.

Treading the heel of Vanke, other leading property firms, such as Agile Property, Capital Group, Evergrande and R&F Property, all reported to have cut price to reduce inventories and boost sales volumes.

However, the cut of home price has just begun. Market analysts are expecting lower price as declining sales and increasing inventory are putting more strains on property firms, especially those small and medium-sized developers.

Zhang Dawei, analyst from the Centaline Property Agency, said the first-tier cities have come very close to the housing price turning point.

"The intention of price-cuts will get stronger in the fourth quarter," said Zhang, citing figures that in Beijing, 53 of this year's 90 new residential projects have already started to offer discounts.

"If the government continues to maintain firm curbs on the real estate market, housing prices will reach a turning point in March next year," Zhang said.

Moreover, more real estate companies in the second- and third- tier cities are expected to follow large firms' steps to cut housing prices under the current policy, emphasized Chang Zhi, chief analyst of Century 21 China Real Estate.

Positive results of property policy

In response to public complaints about soaring property prices, Chinese government has implemented a series of measures to rein in runaway housing prices, including purchase limits, higher down payments, the introduction of a property tax in some cities and the construction of subsidized housing projects.

Experts said the low-income housing plan of the government will boost supplies and alter the landscape of China's property market.

"If supplies of subsidized housing grow steadily, the combination of commercial housing and subsidized housing will shake the foundation that has created the high prices," said Wang Pei, a property analyst from the CEBM Group Ltd, an independent investment advisory firm.

Besides, new property-related loans continued to shrink in China in the third quarter of this year, adding to realty companies' capital strains, according to data from the People's Bank of China (PBOC).

Zhang Dawei, a senior researcher with the Centaline Property Agency Limited (Beijing), said real estate developers are facing greater difficulty accessing financing, with limited credit lines and higher borrowing rates from banks, according to the Beijing News newspaper.

"Home sales are falling and inventories building up. Real estate developers, especially those small and medium-sized firms, are under unprecedented pressure," Zhang said.

The monetary and credit-tightening policies will continue to reduce realty-related loans and affect developers' sales, thus increasing their financing strains, in the coming six or 12 months, the Standard & Poor's (S&P) financial services company said in a recent report.

S&P said the Chinese central government was not likely to loosen its policies in these areas in the near future and therefore developers' exposure to financing problems will heighten.

The government will continue to maintain its control over the real-estate market while seeking to fine tune other economic policies, according to a statement released after a State Council executive meeting chaired by Premier Wen Jiabao on Oct 29.

Local authorities should continue to implement the central government's real estate policies in the coming months, the statement said.

Mixed reactions

It seemed that not all consumers were satisfied with the long-awaited housing price cuts.

Media reports that price drops have sparked disputes in cities among people who have already purchased their homes.

Despite protests from existing homeowners, most consumers are adopting a wait-and–see attitude towards the development tendency of the property market.

With government’s curb steps and tight credit policy, on a quarterly basis, mortgage loans have kept falling in China this year. Loans amounted to 201.1 billion yuan in the third quarter, 281.7 billion yuan in the second quarter and 509.5 billion yuan between January and March, according to the PBOC.

Although recent signs in the property sector indicates that China's housing bubble will gradually deflate, experts cautioned that the sector remains volatile.

The real turning point in the market will come only when buyers feel a "proper adjustment" in new and second-hand housing prices, although it is hard to say whether a "proper" price range will be found, warned Song Huiyong, a research director with Shanghai Centaline Property Consultants

He also cited China's high inflation rate and imported inflationary pressure from other countries as potential risks.