A developer in Shanghai has priced the flats at its new project below cost and offered to make up the difference if prices drop, more proof of the growing desperation of mainland developers as credit tightens and demand dries up.
Future Holdings, one of the 50 biggest developers in the country, is offering the cheapest of a batch of 100 flats at its upmarket Legend Mansion at 18,000 yuan (HK$22,130) per square metre in a three-day promotion that ends today.
The development cost of the project is estimated at 20,000 yuan per square metre. The firm is also offering a unique price guarantee scheme, under which buyers will be compensated for the difference between the price paid now and the market price three months before the delivery in December next year.
Agents said 50 flats were snapped up on the day the promotion was launched. No figures were available for yesterday's sales.
'Competition to get buyers is heating up and only the developers who come out with eye-catching sales strategies will survive in an ongoing market consolidation,' said Nichole Wong, a regional head of property research at CLSA.
Future Holdings' move to offload the latest batch of flats at Legend Mansion at below cost comes on the heels of China Overseas Land & Investment, Longfor Properties, Greenland Group and China Vanke releasing their projects last week at discounts of about 30 per cent from previous launches or going rates in nearby areas in a bid to drum up sales.
The cuts drew the wrath of hundreds of angry homeowners who bought their flats earlier, and marched to sales offices demanding their contracts be cancelled.
Centaline Property's east and northeast China chief executive Clement Luk Shing said he believed other developers would follow Future Holdings' tactic if it worked.
'Developers have no choice but to join the game, or else buyers will go to rival projects,' Luk said.
Alan Jin, the head of Asian property research, excluding Japan, at Mizuho Securities Asia, said the price guarantee was designed to pre-empt the ugly scenes at other projects, where buyers had demanded refunds after prices fell.
'More developers will cut prices if they have cash-flow problems.'
But Jin did not think other developers would follow Future Holdings' marketing ploy in a big way as it would introduce more uncertainties and impede future operations.
'It is hard to determine what the fair price will be three months before delivery. And if home prices keep dropping [beyond the guarantee period], buyers will naturally demand more compensation,' he said.
Chen Lei, a general manager at Future Holdings, said generating cash flow was the key reason for selling the flats below cost.
'We aim to generate 400 million to 500 million yuan from this sale. But there are no plans to offer other projects in Shanghai at below cost,' Chen said. He added that the group had pulled in more than 10 billion yuan in sales so far this year.
The discount trend is also expected to spread to Shenzhen.
Excellence Group said that tomorrow it would release its Wei Lan Hai An project near what it said was its development cost of 4,900 yuan per square metre. That price would be about 30 per cent below the going prices in the area.