Discounts point to end of Shanghai home bubble

The property bubble in Shanghai appears to be deflating with developers offering steeper discounts than normal to drum up purchases by first-time homebuyers.

To counter a 50 per cent slide in transaction volume in Shanghai so far this month, prices of flats at some projects on the city's outskirts are being cut by up to 0.7 per cent from the standard 0.2 per cent discount.

'It makes sense for developers to act fast as demand is drying up after banks tightened mortgage lending,' said Lee Wee Liat, a senior property analyst at Nomura International (Hong Kong).

Buyers at Qin He Yuan in Nanhui district, south of Pudong, will receive 0.7 per cent off flats while at Landsea Green Island in Baoshan, a 0.5 per cent discount is being offered to purchasers, according to mainland newspaper Oriental Morning Post. Units at the projects cost about 1.5 million yuan (HK$1.71 million) each.

Lee noted that the discounts in the two districts were reasonable as prices shot up 60 per cent last year, riding a red hot property market driven by loose bank lending.

The discount sale comes after banks in Beijing, Shanghai, Hangzhou and Nanjing reduced their preferential mortgage interest rates in an attempt to cool lending.


Not all developers are following suit in cutting prices.

A spokeswoman at Shui On Land said the company would not lower prices on its projects in major cities, including Shanghai, Chongqing and Wuhan.

'Most of our projects have received a good response even though we offered them at a premium to market prices,' she said.

Lee said the price cuts had not spread to other parts of the country as the bigger developers had achieved record sales last year.


'They are not under pressure to release new projects at lower prices but it is hard to say what will happen in three or four months as the mainland is a policy-driven market,' he said.

Buying sentiment would certainly be affected if Beijing introduced more tough measures to cool the market, Lee added.


Alan Chiang Sheung-lai, the head of mainland residential property at property consultant DTZ, said mainland builders often offered discounts when marketing new projects.

'Buyers will receive small welcome gifts or a waiver of management fee for a certain period. But I have not seen lots of developers adopting a price-cutting strategy so far,' he said.

Chiang said the market direction would become clearer when more developers introduced new projects in March. 'As the Lunar New Year approaches, activity this month and next will be slow.'