In October 2007, the 92-square-meter apartment a dozen kilometers northeast of central Beijing cost him more than RMB 1.2 million, or RMB 12,500 per square meter. For a time after that Li watched with delight as home prices steadily increased in his neighborhood. But then the drop started. Now the value of his home has gone down by RMB 2,000 per square meter, but even this is meaningless in terms of the reality of the market, since there are no buyers. "I hate to say it, but I bought at the peak of the home price curve." Li thought of selling the house when the first signs of a price drop appeared. The idea was opposed by all of his friends but one. "Given the government's tone at the time, most people didn't believe a fall in home prices would occur."

After being assigned to a position in another city, Mr. Li leased his apartment through a real estate agency. "It is not difficult to find tenants. There are a lot of people who don't own homes in Beijing, and my property is located in a convenient commercial district." His rent income has also spiraled downward however, from over RMB 3,000 in September 2008 to RMB 2,500 at present.

Real estate agencies are similarly feeling the pinch. Liu Weisong, a salesman with a Homelink outlet in eastern Beijing, has not struck a deal for weeks, which means he makes no more than his basic salary of just over RMB 1,000 a month. The office, formerly staffed by ten, is now half empty, and the lights are not switched on at dusk – "To save money," explains Liu with some embarrassment. During the heat of the real estate boom the 500-meter-long street where Liu's store sits was lined with around ten home agency businesses. Only three or four have survived. "There are few inquires and fewer buyers," sighs Liu. Clients who formerly had the intention to buy are saying they wish to postpone the deal. "No buyer wants to see the price they pay plummet the next day."

The billboard outside the store listing home prices has been updated with increasing frequency in recent months. The biggest fall has been RMB 3,000 per square meter, a 20 percent drop. In outlaying parts of the city home prices have dipped by as much as 30 to 40 percent.

What makes things worse is the rising backlog of unsold apartments across the nation. By the end of November 2008 unsold floorage climbed to 136 million square meters, or more than 1 million apartments of 100 square meters.

Regardless of loud hisses from the public, the government pushed through salvation measures for the real estate industry, mindful of possible ripple effects on other sectors such as building materials. New moves announced in the fourth quarter of 2008 included fee and tax reductions on real estate deals, and easier access to bank loans for both developers and home buyers. In addition, government-funded apartments priced below market rates for low-income urban residents can now be resold two years after their purchase date, instead of the previous five.

Shi Hanbing, a critic with eminent Shanghai Securities News, believes the adjustment in China's real estate industry will last at least three years, which is necessary to push bubbles out of the sector. He shares the public's opinion that sky-high home prices have far surpassed the buying power of most people in the nation, and has bitten deeply into consumption.

In 2007 the disposable income of Beijing families averaged RMB 66,000, while an average home within the Fourth Ring Road (eight kilometers from the city center) stood at RMB 18,400 per square meter. This created a housing price-income ratio of 27.8:1, far above 3-6:1 that the UN and World Bank deem reasonable. Even the ratio for homes beyond the Sixth Ring Road (15 to 20 kilometers from central Beijing) was double the UN and World Bank benchmark.

The recent fall in real estate prices has been hailed by all but those who bought their homes around the end of 2007, when prices reached their peak. Li Jun took a 30-year loan of RMB 700,000 for his apartment, paying back RMB 4,300 per month. After several cuts to interest rates by the bank, he still faces a rate of 5 percent, which means a considerable sum each month given the whopping RMB 700,000 gross. The experience of homeowners like Li has rung alarm bells for other potential buyers, convincing them the best thing to do for the moment is to sit tight.