Jane Chen / Shanghai Daily news

A property developer in Shanghai has had to cough up about 30 million yuan (US$3.7 million) in cash refunds to its homebuyers in an attempt to prevent them from going back on their purchase agreements, today's Shanghai Morning Post reported. 
This adds to the already gloomy outlook for the city's sliding real estate market, analysts said.
According to the report, Shanghai Hongxiang Real Estate Co Ltd, developer of the project Jin Sha Ya Yuan, started the sale of its fourth-phase project last month at an average 8,000 yuan per square meter, 30 percent below the 11,500 yuan recorded for the third-phrase project. 
Responding fiercely to the sharp price cut, third-phase buyers demanded refunds and threatened to cancel their purchases.
Since commencing sales in April, 130 out of the total 295 third-phase homes have been sold. To retain those contracted as well as attract buyers for the newly opened phase, the company has agreed to offer cash refunds, said Qi Changnian, the official in charge of the project's sales office.
According to him, the refund is of up to 20 percent of the total price, or about 30 million yuan in total.  If they don't accept the offer, buyers have the option of cancelling their purchases by paying compensation set at 5 percent of the agreed price as stated in the purchase contract.
Most buyers have opted for cash refunds from the developer, each receiving 200,000 to 300,000 yuan, Qi revealed. 
It is for the long-term view that the developer has decided to pay out such a sum, he said, noting that most of the buildings in the project's central area have yet to see construction started, or sales, while the market has begun diving.
Price competition has proved to be the last straw, and this developer can't escape the inevitable cutting of prices for the new-phase project.
After the price cut of 3,500 yuan to 8,000 yuan at Jin Sha Ya Yuan, developers of nearby projects have also joined the competition and have slashed prices to below 6,500 yuan per square meter.