BEIJING - China's largest property developers have started offering discounts
and other incentives to fight shrinking sales, a possible indicator that
tighter credit and other measures by the government to cool the economy are
having an impact.
Vanke Co Ltd, mainland China's biggest listed property developer, announced an
across-the-board discount of over 5% for 10 of its housing estates in Shanghai
on the Lantern Festival (February 21)
that traditionally marks the end of the lunar new year celebrations, the first
time the company has offered such a large discount in the city.
The discounts may be a harbinger of more to come, as they follow a recent drop
in land prices in Shanghai. Tishman Speyer Properties acquired a plot of
267,481 square meters in New Jiangwan Town at a starting price of 7,500 yuan
(US$1,000) per square meter in January, with no competition. Any plot in the
same area would command 12,500 yuan per square meter last June and 20,000 yuan
in November.
"This indicates sliding housing prices in one to two years," said Luo Xiaohua,
general manager of Jing Rui Properties.
The government raised interest rates six times last year, increased the minimum
reserve ratio of commercial banks and took other measures including tax changes
as it sought to take rein in property prices and otherwise take the steam out
of the economy.
Property prices in the southern boom city of Shenzhen rose by more than 20% in
the year to June 2007, while upper-end houses showed even 50% gains in the
first half before sales started to tail off in the second six months. By
December, an insider estimated that at least 15,000 property sales people had
lost jobs in the preceding four months and expected some 30% of property
agencies would be out of business by early spring.
In Shanghai, sales of new homes fell by 20% in October and 10% in November
month-on-month.
Because of a weakened market, small and medium-sized property developers are
the most nervous as they are faced with more financing pressure compared with
listed companies, with commercial banks taking tighter measures to rein in
credit.
Vanke's sales drive includes improved terms for cash buyers. A sales clerk at
one of the company's offices said those paying the full amount in one go will
get as much as an 8% discount. Those who can cough up half of the price as down
payment will get a 6% discount, she said.
In Beijing, two of Vanke's projects were offering 5% to 7% discounts on one-off
payments during the Lunar New Year holiday.
The unprecedented festival discounts seemed to work. Vanke said it pulled in
257 million yuan on the Lunar New Year's Day on February 7, compared with the
company's 70% dive in sales from December 2007 to 1.85 billion yuan in January.
Industry insiders said such a strong promotional offer by a leading developer
indicates the market will continue to be bleak in the months to come. Vanke
shares tumbled 4.9% last Friday to 22.81 yuan, the lowest since July 17 and
down from 40.78 yuan last November. The shares were trading at 22.99 yuan on
Thursday.
Many other real estate developers may follow Vanke's example by offering more
discounts, said Chen Sheng, director of China Real Estate Index System.
Shanghai-based Jing Rui Properties (Group) Co Ltd has already lowered its
prices by offering a 3% discount for group purchases and a 2% discount for
those recommended by previous buyers. Hopson Development, a Hong Kong-listed
real estate firm, picked out several apartments for a sales promotion in
Beijing, cutting prices from 30,000 yuan per square meter to 22,500 yuan per
square meter.
A project developed by Beijing-based Huayuan Real Estate is offering an over 7%
discount for those buying small apartments.
Coastal Greenland group, also a property developer from Hong Kong, reduced its
prices for new projects in Beijing as early as December, lowering them by
around 400 yuan per square meter from the average of 17,000 yuan per square
meter in the area. Coastal's Hong Kong shares are trading at around HK$1.53,
after recovering from just below HK$1.00 in January though still down from
HK$2.65 last October.
A number of large developers, faced with an uncertain economic outlook this
year including a likely slower growth rate for the Chinese economy, rising
inflation and tightening monetary policy, are trying to sell quickly and then
take over other projects and smaller developers when the market dives, industry
analysts said. Others are eager to sell off their projects to jazz up annual
reports.
"Sales of high-end projects will face a big challenge this year as most buyers
are investment-oriented," said Zhang Lei, who is involved with marketing with a
developer that has several high-end projects going in Beijing.
Pan Shiyi, chairman of Hong Kong-listed SOHO China, said prices of low-end
properties are most likely to be dragged down with the entry of more affordable
housing, while projects with good locations are likely to continue to be
popular. SOHO shares have started to decline again after recovering to around
HK$7.00 earlier this month following a slide from HK$11.98 in November to as
low as HK$4.28 in January. They were trading at HK$6.10 on Thursday.
The direction of house prices may not become apparent for a couple of months
yet, according to Luo Xiaohua, general manager of Jing Rui Properties. "We
won't clearly see where housing prices are heading this year until April, after
a clearer real estate policy will be announced in the annual sessions of the
National People's Congress and the Chinese People's Political Consultative
Conference."
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