Chinese real estate developers are hard pressed by dwindling market demand and tightening bank credit. Even during the traditional hot season for the property market, or literally “Golden September and Sliver October”, they are disappointed as there is no sign of any recovery in this industry.

According to China Vanke, the country’s largest listed property developer, the sales revenue declined 35.2% in Aug 2008 than the same period of last year. This is the third consecutive month of decline.

In face of a sluggish market, fast transaction volume is more important to developers than fat profit margins. Therefore, some property developers begin to recoup their capitals by running down its inventory through discount sales. For example, Vanke launched a promotional campaign from August.

Although quite a few real estate developers are offering discounts as promotion tools, many people still hold the attitude of “wait and see”. Objectively, high home price is the main reason for the prospective home buyers’ reluctance.

For example, after the breakout of Asian Financial Crisis, Hong Kong real estate prices dropped nearly 70%, but the general public still reluctantly buy houses. Not until the improvement in HK’s economy and demand for residential houses in last two years did the turnover in HK began to pick up.

According to the unnamed Vice-president of some real estate company, under the circumstance, if the home prices dropped by 5% or 10%, it would not witness any apparent effect. Otherwise, the large-scale of price reduction would lead to a growing discontent of homebuyers. Take Shenzhou for example, due to the recent price drop, some disgruntled home owners gave vent to their anger by stopping paying back their mortgage loans.

On the other hand, the central government shows no signs of easing credit control in real estate industry. The central bank and the China Banking Regulatory Commission jointly issued a notice that required financial institutions to have stricter control over their loans to property developers and forbade loans to meet land remise fees.

According to some industry insider, now more than 95% of capitals in real estate industry come from commercial banks. This is not appropriate ratio. It not only poses risks on banks, but also causes the lack of financing channels in this regard.