Reporting from Hangzhou, China — For generations, Chinese have flocked to this historic city to enjoy its centuries-old pagodas, Buddhist temples and scenic lakes surrounded by drooping willow trees.
In recent times, Hangzhou has attracted scores of visitors for a different reason: real estate.
Hordes of buyers snapped up luxury apartments, buying out some projects within hours based on little more than floor plans. Powerful developers listed properties whose prices seemed more suitable for Beverly Hills. And the local government, flush from sales of public land to builders, built itself a $650-million headquarters.
"Hangzhou is a symbol of how profitable real estate has become in China," said Du Jinsong, head of China property research at Credit Suisse. "It was a highly speculative market."
But concerns about a U.S.-style real estate bubble led the central government in recent months to pass measures aimed at reining in speculators here and nationwide. Those restrictions, which include tighter lending standards and higher down payments, have probably spelled the end of untamed growth in Hangzhou, a city of 8 million residents about 115 miles southwest of Shanghai.
Housing sales have plunged. Property values have declined far faster than the national rate. Real estate agents are getting restless.
On a recent afternoon, Hangzhou agent Hu Kong checked his smart phone in vain for messages from prospective buyers, who have vanished faster than a breeze off the city's West Lake.
"There hasn't been much for us to do lately," Hu said. Two of his priciest listings have been languishing on the market for months: an $8.8-million, nine-bedroom, eight-bathroom riverfront condominium, and a $22-million Gatsby-esque mansion with ornate columns and carefully manicured grounds.
Those prices may be wishful thinking. The median price for a 1,000-square-foot home here in July was $290,366, a steep 18.2% drop from the previous month because so many high-end homes have been taken off the market. By comparison, a national index of median prices rose 1.6% over the same period.
"We're just hoping things bounce back in a few months," he said.
Hangzhou is a cautionary tale of the challenges faced by China's central government, which is trying to curb galloping housing prices without hobbling the economy. Societal pressure is growing as more ordinary residents in Hangzhou and other cities are being priced out of the market. But an abrupt pullback could jolt the banking system and cripple an industry that accounts for about a fifth of the nation's economy.
"The central government is trying very hard to stabilize the country's housing market," said Cao Xudong, of the China Index Academy, a national real estate research firm. "There was definitely a bubble here" in Hangzhou.
Situated in the Yangtze River Delta, Hangzhou for centuries has been the home of prosperous merchants. In recent years the city's real estate market exploded, fueled by wealthy Shanghai residents desiring vacation homes, coastal exporters seeking a hedge against inflation and investors from the nearby city of Wenzhou, famed in China for their business acumen.
Hangzhou officials welcomed the investment. All land in China is owned by the state, but it can be "lent" to developers — for a price. Such sales used to be conducted behind closed doors; builders needed connections to powerful bureaucrats to prosper. Seeking transparency — and more revenue for Beijing, which splits taxes with local governments — China's central planners in 2004 ordered all such transactions to be allocated through public auctions.
This new competition boosted land sales nationwide, but demand was particularly frenzied in Hangzhou. Last year the local government generated $1.6 billion in land sales, more than any other city in China.
Part of that revenue was used to compensate residents forced out of their homes to make way for new high-rises. It also financed infrastructure, including the city's new civic center. The lavish project includes a sleek, $140-million theater, a $294-million convention hall that looks like a giant, golden orb, and the $650-million municipal complex — five glass towers connected by skywalks.
"Most people can't afford homes and the government gets a new headquarters," said Fu Guoyong, a financial commentator based in Shanghai. "It goes to show that all this development is superficial. It's just for personal gain."
Speculators prospered too. Experts said up to half of Hangzhou's housing market has been driven by investors rather than homeowners — double the estimated national rate.
