Price war starts on mainland
Kenji Fujimoto was accepted into Kim Jong-il's inner circle during a 13-year stint serving North Korea's first family. The Japanese sushi chef gives Julian Ryall his take on the communist dynasty'...
The first shots have been fired in a property war on the mainland that has already slashed prices by almost a third and could see them halved by next year.
The opening salvo in what agents and analysts say could be a long battle by developers to shift their stock of unsold homes got under way in earnest when four major developers cut prices on their new releases by up to 30 per cent last week.
The move came after lingering hopes the government might be poised to relax policy measures to curb price rises and the growth in demand were finally dashed by Premier Wen Jiabao.
In comments posted on the government's official website after a State Council meeting last Saturday, Wen said local authorities should continue to 'strictly implement the central government's real estate policies in the coming months to let citizens see the results of the curbs'.
Investors had begun dumping property stocks ahead of the latest developments as steeply falling sales sent advance signals to the market of the desperate round of price cuts that started last week. China Overseas Land & Investment's share price fell 7.5 per cent on September 12 to close at HK$14.30, making it the worst blue-chip performer. The fall came after it announced that sales volumes tumbled 12.9 per cent to 331,600 square metres year-on-year.
The ripple effect of that announcement took Evergrande Real Estate's stock down 9.2 per cent to HK$3.73 ahead of its report on sales performance, and highly geared mainland developer Agile Property also plunged to a 52-week low to end at HK$8.55, down 6.55 per cent from its previous close.
The stock prices of all three slipped further, with China Overseas Land ending at HK$13.68 yesterday, Evergrande at HK$3.25, and Agile at HK$6.79.
Cao Jianhai, professor of economics at the Chinese Academy of Social Sciences, said on Monday he expected the price-cutting to be sustained into next year if the cooling measures persisted, taking home prices down by as much as 50 per cent from their present levels.
Buoyed by the developments, homebuyers flocked back to the market. According to the mainland property website SouFun, the number of homes sold in Shanghai during the week of October 24 to 30 jumped by 42 per cent from the previous week to 1,151. Average transaction prices were 19,331 yuan (HK$23,607) per square metre - down 10.5 per cent from the previous week.
The statement posted on the government website left the market in no doubt that the property restrictions would be firmly policed across the nation.
'More developers will now join in with price cuts to fight for buyers, since Premier Wen has cleared up any further speculation of a potential lift of the restrictions,' it said.
The statement sent a signal that no relaxation should be expected in the foreseeable future either,' said Clement Luk Shing, chief executive of Centaline Property's division in east and northeast China.
Luk said he believed listed developers would take the lead in making deep price cuts since they were under pressure to lock up sales revenue as early as possible to meet their annual sales target before their financial year-ends next month.
Not all homebuyers welcomed the developments and in Shanghai, Beijing and other major cities, hundreds of angry homeowners who had just bought their flats before the price cuts marched to sales offices demanding that their contracts be cancelled. The protests reportedly prompted the Shanghai municipal government to say it would look into the issue to prevent social unrest, without further elaboration.
Luk, however, said it would be hard for local governments to stop developers cutting prices.
'A sharp price fall will show that developers support the central government's call to curb price growth. More importantly, it will be good news to prospective homebuyers, who can make use of this opportunity to buy.'
First to move with price cuts last week were China Overseas Land, Longfor Properties, Greenland Group and China Vanke, who released their projects at discounts of about 30 per cent from previous launches or transaction prices in a nearby areas to drum up sales.
Signs that the price war was spreading then came when the Excellence Group announced it would release its Wei Lan Hai An project close to Huizhou at what it said was its development cost of 4,900 yuan per square metre this Saturday. The price is around 30 per cent lower than the prevailing transaction prices in the area.
Since earlier this month, selective projects in the Longhua district have also been discounted in a bid to generate sales.
Wen's comments about firmly implementing existing curbs came after growing calls for a relaxation of the policy measures.
On Wednesday last week Wu Xiaoling, deputy director of the finance committee of the National People's Congress Standing Committee suggested home purchase restrictions to curb investment demand should be relaxed in Beijing.
On the same day, Hangzhou developers lobbied for a relaxation of the limits on the purchase of luxury homes, while conceding that existing caps could remain unchanged for apartments under 90 square metres which cater to the mass market.
Next day, the head of the Housing and Urban-Rural Development Ministry, Jiang Weixin, said a government measure limiting home purchases was temporary and would be replaced by a less restrictive measure.
Despite the mixed signals, Nicole Wong, regional head of property research at CLSA, believed the restriction on the number of home purchases was unlikely to be lifted in the short term.
'The level of pain in the market is still manageable right now,' she said.
Liao Qun, Citic Bank International's chief economist for China, believes some smaller developers, already under pressure from the tightening credit market, may close down as a result of the price war.
The number of flats sold in Shanghai in the last week in October, a rise of 42 per cent from the week before, said the SouFun website