Mainland developers escalate price war as sales fall
Mainland developers have started another round of large-scale price cuts after property sales slumped in January.
The latest price war has been triggered by China Merchants Property, which has cut prices by as much as 20 per cent or more on 22 developments in 14 cities, including first-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen, as well as second and third tier cities like Chongqing, Nanjing, Suzhou and Tianjin.
The preferential price offer began last Friday and runs to March 31, according to China Merchants' website
The price cuts vary, depending on location and market conditions in individual cities. The biggest cut was seen in a development in Chongqing, where a batch of new units will be sold at a starting price of 7,000 yuan (HK$8,610) per square metre tomorrow, according to the mainland website, Guardian. That price is more than 20 per cent lower than the price of the previous batch of units - 9,200 yuan per square metre, Guardian quoted a sales executive at China Merchants as saying.
'Developers cannot find buyers if they do not cut prices,' said Sherman Lai Ming-ka, chairman of Hong Kong-based property agent Centaline Property. 'Buyers will return to the market if developers are willing to cut prices by 20 per cent.'
China Merchants is not alone in its price cutting. Poly Real Estate Group launched a preferential price offer for 100 projects in 40 cities last month, and the offer runs until March, according to mainland publication 21st Century.
China Vanke and Evergrande Real Estate have offered special prices for some units in some projects, but not on the same scale as Poly Real Estate and China Merchants.
Poly Real Estate's January contracted sales fell almost 70 per cent from a year earlier, to 1.51 billion yuan, while China Vanke posted a 40 per cent year-on year-drop in January contracted sales, to 12.2 billion yuan.
Hong Kong-listed mainland developers such as Longfor Properties and Evergrande Real Estate have also reported year-on-year falls of more than 50 per cent in property sales in the first month of this year.
'Housing prices have dipped into negative territory since last October. We expect the current downward trend in prices will be maintained in the next one or two quarters,' said Alan Jin, a regional property researcher, Asia ex-Japan, with Mizuho Securities Asia.
January home prices in 47 of 70 surveyed mainland cities fell, while home values in the remaining 23 were unchanged from December, according to the National Statistics Bureau. None of them posted gains, the first time that has happened in about a year.
'The housing market has yet to reach bottom,' Jin said.
Jin estimates that the sector will need to repay 2.6 trillion yuan in borrowings, which is 30 per cent higher than in 2011.