Falling home values. Debt-strapped borrowers. Real estate woes dogging the economy. It’s old news in the United States, but now the air has started to leak from another great housing bubble — in China.

Home prices nationwide declined in November for the third straight month, according to an index of values in 100 major cities compiled by the China Index Academy, an independent real estate firm. Average prices in the Shanghai area are down about 40% from their peak in mid-2009, to about $176,000 for a 1,000-square-foot home.

Sales have plummeted. In Beijing, nearly two years’ worth of inventory is clogging the market, and more than 1,000 real estate agencies have closed this year. Developers who once pre-sold housing projects within hours are growing desperate. A real estate company in the eastern city of Wenzhou is offering to throw in a new BMW with a home purchase.

The swift turnaround has stunned buyers such as Shanghai resident Mark Li, who thought prices had nowhere to go but up. The software engineer closed on a $250,000, three-bedroom apartment in August, only to watch weeks later as the developer slashed prices 25% on identical units to attract buyers in a slowing market.


Outraged, Li and hundreds of others who paid full price trashed the sales office, scuffled with employees and protested for three days before police broke up the demonstration. Walking away now would mean losing the $75,000 down payment that he borrowed from his working-class parents.

“I still haven’t told them,” Li, 29, said of his home’s plummeting value. “It will just make them worry, and it’s already too late.”

It’s all eerily similar to the early stages of the U.S. housing crash. The big difference is that the Chinese government intentionally slammed on the brakes.

Over the last year it has tightened lending and prohibited the purchase of more than one home in several cities, in a bid to discourage speculators and bring down prices. Chinese authorities say they’re trying to tame inflation and defuse public anger over housing costs, the fallout from the government’s efforts to stimulate the economy with easy credit during the global financial crisis. They have pledged to keep home buying limits in place for the foreseeable future.


But concern is growing about Beijing’s ability to engineer a soft landing.

The property sector is a huge employer and now accounts for about one-fifth of China’s economic output. Local governments are heavily dependent on land sales to fund public services and to pay off municipal debt. Banks issued record numbers of home mortgages and construction loans, whose collateral is real estate that’s now falling in value.

A real estate crash would reverberate well beyond China. The building binge helped fuel a global boom in raw materials including Brazilian iron ore and Chilean copper. And it would hobble an economy the rest of the world was counting on for new consumers and investment opportunities.

The Paris-based Organization for Economic Co-operation and Development warned last month that a collapse of some major Chinese real estate developers would put the nation’s banks at risk, a threat that’s “overshadowing” the economic outlook of the world’s second-largest economy.


Some analysts, however, contend those fears are overblown.

Hundreds of millions of rural Chinese are projected to move into cities in the coming decades, bolstering demand for new housing.

And Chinese aren’t nearly as leveraged as Americans. First-time buyers are required by law to come up with down payments equal to 30% of a home’s purchase price; many put down more. Experts say the government could also lift its buying restrictions.

“I don’t think China is in danger of a U.S.-style housing crash,” said Alistair Thornton, a Beijing-based analyst for IHS Global Insight. “They still retain lot of levers of control should the property market slide faster than expected.”


But for now, Thornton said, Beijing is committed to shoring up its credibility after promising to bring housing prices back to Earth. Since the government began opening the sector to private ownership in the 1990s, “the market has only gone up … and they want to put across the message that it’s not a one-way bet,” he said.

That’s news to millions of Chinese for whom real estate ownership has become an obsession. The mania has cemented itself into the national zeitgeist, inspiring a wildly popular soap opera, songs and even new slang. Debt-strapped home buyers have been dubbed fang nu, or house slaves. Couples who wed without owning a home are said to have a luo hun, or a naked marriage.

With property values now falling, angry home buyers have staged at least seven demonstrations in the last three months in cities including Beijing and Shanghai. Mobs have destroyed real estate offices and demanded refunds of up to 40% after developers dropped prices for later buyers.

The protesters have garnered little sympathy on China’s microblogs, a Twitter-like national nerve center with 300 million users. Many bloggers have denounced the home buyers as speculators hoping to make a quick buck by flipping units.


“You deserve this!” read one comment on the most heavily used service, Sina Weibo.

Such criticism isn’t fair, wrote homeowner Wang Zeyi, who bought a unit in the same complex as Li in Shanghai.

“Most of us home buyers really just bought for ourselves to live in,” Wang posted on her Sina microblog. “And overnight, the assets just evaporated.”

The developer, China Vanke Co., told The Times via email that the price reductions were “decided by supply and demand on the market.”


But Li, the software programmer, said he feels cheated.

“The sales agent told me prices wouldn’t go down, that I was getting the best deal,” he said. Li plans on marrying his girlfriend this time next year, when the apartment is scheduled to be finished. He’ll have to devote half of his $1,500 monthly salary to pay the mortgage.

Li said he hasn’t worked up the nerve to tell his parents how much his apartment has fallen in value — not after they lent him their life savings for the down payment. His father, an electrician, and his mother, a middle school teacher, live in Jiangxi, a poor province southwest of Shanghai. Frugal savers, they insist on walking wherever they can to save on bus fare when they visit their son in the city.

“I really thought I could save enough for a house,” Li said. “But over the years, property prices grew so much faster than my salary. I couldn’t play this catch-up game. I had to ask my parents for help or I’d never settle down.”


david.pierson@latimes.com

Tommy Yang and Nicole Liu in The Times’ Beijing bureau contributed to this report.