China property

Chinese developers under pressure to lower prices at new projects, says Longfor CEO Shao Mingxiao

Shao Mingxiao says life is becoming tougher for builders after a slew of government measures to take the heat out of the market
He believes the government will ensure home prices slip gradually rather than collapse
    PUBLISHED : Thursday, 22 November, 2018, 6:43pm
    UPDATED : Thursday, 22 November, 2018, 11:02pm

    Home prices in China will continue to fall, as new projects in particular face slowing demand, according to the boss of one of the country’s biggest property developers.

    Shao Mingxiao, CEO of Longfor Group, said life is becoming tougher for builders after a slew of government measures in recent months to take the heat out of the market.

    “We see that the purchase cycle, from visiting a project to sealing the deal, has become longer as buyers are getting cold feet. Doing property business will be more difficult,” said Shao.

    “We will consider adjusting prices at some new projects. But we will not lower prices of those we’ve already started selling as it would cause damaging results.”

    China has seen angry protests erupt previously when developers have cut their prices at a project when sales are already under way.

    In October, buyers who had paid full price for flats at two projects in Shanghai and Jiangxi reacted furiously when Country Garden Holdings, the mainland’s largest developer by sales, slashed prices by up to 30 per cent. Scores of people who had paid the original price gathered to protest, brandishing placards and chanting “return my hard-earned money!”

    Although the bull run of Chinese property prices in the past two years is over, government intervention will ensure home prices slide without completely collapsing, said Shao.

    “The government will establish a long-term control system to keep the prices moving in a reasonable range, neither dipping too much nor hiking too much,” he said.

    China’s real estate market is starting to soften after a long period of growth because of a string of measures introduced by Beijing to rein in home prices.

    The most recent came on July 31, when top officials said the country would remain firm on “containing home price gains”, removing the word “excessive” from the phrase used in its previous policy stance.

    Sales of new homes, measured by area, fell 1.3 per cent in October from a year earlier, a bigger contraction than the 0.8 per cent seen in September, based on data released by the National Bureau of Statistics.

    The ailing market led to a U-turn in the strategy of many Chinese property developers, which had been rapidly expanding in response to the surging home prices over the past two years.

    Longfor’s contracted sales in October came to 15.04 billion yuan, down 14 per cent from 17.42 billion yuan in September, which itself was flat compared August.

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    While still confident in meeting the sales target of 200 billion yuan for this year – it achieved 82 per cent of that in the first 10 months – Longfor was more cautious in setting next year’s target, though Shao would not reveal the number.

    To survive the cooling market, the company has been focusing more on its other core business sectors, such as commercial operations and long-term rental apartments where Beijing has provided supportive policies. It also operates property services and public community management services.

    Longfor currently operates 28 shopping malls in six cities, which will contribute more than 3.6 billion yuan in rent this year. In the coming two years, another 20 new shopping centres are scheduled to be launched.

    The company hopes to generate 15 billion yuan from its non-property businesses in 2020, rising to 100 billion yuan in about 10 years’ time.

    “One day, we may see our other businesses surpassing property development,” said Shao.

    Meanwhile, Longfor’s chairwoman, Wu Yajun, transferred the whole of her 43.9 per cent stake in the company to her daughter, Cai Xinyi, according to a statement released on Thursday night.

    Longfor’s shares finished the day at HK$21.45, which makes the transferred stake worth about HK$56 billion.