By Craig Stephen

HONG KONG (MarketWatch) — When dealing with China, action can often speak louder than official numbers, especially when that action involves protests.

Last year, an outbreak of strikes by workers demanding higher wages due to surging living costs told that China had a serious inflation problem, long before authorities began hiking interest rates.

Last week, as protests by property buyers angry at falling home prices spread across various mainland Chinese cities, one conclusion is the mainland property market has decisively turned. While numbers for September shows property prices rose in all but one of 70 mainland cities, these protests tell a different story: China’s property-owning dream is fast turning into a Halloween-like nightmare.

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The China Daily reported how hundreds of homeowners stormed into the sales office of Longfor Co.


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 in Shanghai last week to demand compensation after apartment prices were cut by as much as 30% since they signed their purchase contracts. The unfortunate buyers, some of whom will not receive their apartment keys until next March, are already facing a 300,000 yuan ($47,000) loss on their purchase.

Protests were also reported at the sales office of developer Greenland Group and Hong Kong-listed China Overseas Land Investment


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 , as well as in Beijing and Hangzhou. Some protests have also turned violent, the South China Morning Post reported.

Buying property off plan is well know to be higher risk, and buyers are unlikely to have legal grounds for complaint. Nonetheless, it is easy to imagine how completion on these properties could feel like a very bad dream.

Authorities appear to recognize the potential for these disturbances to escalate after the Shanghai government began asking developers to report price cuts of more than 20%. If cuts are perceived as a direct result of government policy to cool the property market — which currently restricts multiple home purchases — authorities are likely to face growing pressure to change course.

So far, most commentary on China’s housing market has focused on the potential fallout for banks rather than buyers. Just two weeks ago, the banking regulator stated stress-testing revealed that mainland Chinese commercial lenders could withstand as much as a 40% decline in property prices.

One reason for this resilience is that home buyers put down a hefty deposit. For first time buyers, it’s 30% for most properties, and for second homes, it is 60%, after being raised from 50% earlier this year. So banks at least have a buffer that the U.S. did not have with Ninja loans or interest-only mortgages.

Still, this does little to protect buyers from the risk of substantial wealth destruction if these price declines are permanent or escalate.

Cutting prices of properties in a yet-to-be-completed project hardly looks a smart marketing tactic. In fact, one estate agent described it to me as his nightmare scenario of completing a sale when a developer is already selling the same units at lower prices.

There are examples of Hong Kong property developers in the past leaving buildings empty for years rather than cut prices. But they operate in a market dominated by a handful of large, well-capitalized developers who have a pricing discipline OPEC would be proud of.

The property market in mainland China is not just much larger but also much more fragmented. It is estimated there are 20,000 property developers, while there are over 200 listed on the mainland and Hong Kong exchanges. Some form of consolidation now looks inevitable as weaker developers are forced into distressed sales.

Quality developers with strong balance sheets look as important for prospective buyers as for investors in the current environment.

Looking ahead, any clues of a policy change for property is likely to be keenly watched. The city of Foshan in Guangdong province appeared to have jumped the gun last week after it first lifted and then reinstated property-price curbs in quick succession.

In recent days, Chinese Premier Wen Jiabao appeared to dampen expectations of a change of course when he said control measures on property will be maintained “firmly.” Wen also said the government will “fine tune” economic policies in “an appropriate degree and appropriate time,” suggesting some flexibility.

However, for now Premier Wen is likely more worried about protests over rising food prices than the falling prices of apartments.

Another consideration is: How much can the government really do to move the market? There appears a widely held belief that a change in government policy can quickly give the property market new legs. This echoes thinking following the 2008 stock market crash in A-shares that all that was needed was for Beijing to signal it was time to start buying equities again. But since then, China’s stock markets have continued to decline.

Will authorities have any more success controlling the property market? Much depends if the real-estate market in China will resemble tightly controlled Hong Kong market or that of Japan. Two years after the Tokyo stock market collapsed in 1989, the property market also went into free-fall. Japan went on to endure its own Halloween nightmare of zombie banks for years afterwards.

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