China’s government has made controlling its frothy real estate market a top priority in 2017, and authorities in Xi’an have taken this war on homebuying to a new level by shutting down sales of 12 projects belonging to the country’s second-largest developer in their city of nearly nine million people.
The housing bureau in the capital of northwestern China’s Shaanxi province announced on its website on Monday that China Vanke is suspected of illegal sales at its Vanke City Glory (万科城市之光) and Vanke Oriental Legend (万科东方传奇) projects, both high profile multi-stage developments covering more than a city block each. The local government has responded by shutting down new sales at all of the Shenzhen-based developer’s 12 projects in the city, according to the statement.
The lockdown of Vanke sales comes as Chinese cities take ever harsher measures to control rapidly rising housing costs, after the central government made cooling down the real estate market a top priority at its annual meetings in March of this year.
Vanke Implicated in “Illegal Pre-Sales”
Enforcement officers from the Xi’an housing authority are said to have carried out on-site investigations of Vanke projects in the city, resulting in sales offices being closed at government order, according to a report by official news agency Xinhua. Vanke is accused of “illegal pre-sales” of projects which had not completed all steps of the official permit process.
The housing cops questioned Vanke’s deputy general manager for Xi’an, extracted computer data, and dug through company records before issuing an order to “cease illegal activity,” according to Xinhua. The official media report indicates that authorities found illegal sales at Vanke City Glory and Vanke Pearl Forest (明珠汇博林). Xinhua reported that Vanke offices at its Liyuan Mansion (梨园公馆) project had also been sealed by the police.
The official order demands that Vanke immediately stop noncompliant pre-sales, accept an official investigation, close its sales offices and make its staff available to investigating officials. The local authorities promised that violations would be severely punished under the law, without specifying potential penalties.
Xi’an Launches City-Wide Crackdown
The action against Vanke is said to be part of a city-wide effort to stop illegal sales of housing in Xi’an, according to the Xinhua report, with authorities pledging to work nights and weekends to raid sales offices and push forward investigations.
In addition to shutting down Vanke’s projects, the authorities say that prominent local brokerages are under investigation for illegal sales activities, and urged the public not to sign contracts for purchases of homes at projects that had not received all required permits.
Inquiries by Mingtiandi to Vanke representatives went unanswered at publication time, however, it’s unlikely that the second-largest seller of homes on the mainland decided that 2017 was the time to test the limits of city government authority. There is a chance, however, that the Xi’an government, feeling pressure to cool the housing market, has decided to give new guidance on pricing and sales launches on projects that may have been in the pipeline for three years or more.
“Developers such as Vanke don’t start selling projects without first discussing with local authorities, so this is an interesting battle for someone to pick,” veteran China real estate advisor and former head of China real estate advisory and urbanisation services at PwC Sam Crispin told Mingtiandi. “Taking action against a top name homebuilder such as Vanke could be a way for the city government to send a message to everyone selling housing in the city that they need to follow some new rules,” Crispin added.
China Just Says No to High Priced Home Sales
During the past year, local governments in a number of Chinese cities have pushed developers to delay or postpone opening new projects, particularly high-end developments, as a way to avoid news of rising home prices.
Developers both foreign and domestic have been asked to delay the sale of or re-price luxury homes by local government officials afraid of being seen as not doing their part to hold down the price of housing in their jurisdictions.
During February local media reports indicated that Beijing authorities had put a price cap of RMB 80,000 per square metre on the sale of new homes, although some reports indicated that this standard applied only to the central district of Chaoyang. Central government officials have since praised the leadership of Beijing municipal authorities in assuring housing affordability and cooling down home prices.
Developers who spoke with Mingtiandi on condition of anonymity have reported similar measures in Shanghai, with the homebuilders being told that they should consider delaying the launch of their projects until after the current market pressures had subsided.