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A property sales centre in Zhongshan, in China’s southern Guangdong province. The slowdown in property sales will put significant pressure on China’s economy. Photo: Pearl Liu

Evergrande, Country Garden among Chinese developers cutting prices to boost sales, further weighing down sluggish economy

  • Property sector contributes 25 per cent of China’s domestic economic output, according to Moody’s
  • 2019 likely to see close to zero growth in the country’s new home sales, Oxford Economics says

Winter has come for China’s otherwise frenzied housing market, as the country’s top property developers slash prices to boost sluggish sales.

China Evergrande, the country’s third-largest developer by sales, said it was launching a two-month campaign offering discounts of up to 22 per cent on 532 projects across China, starting from Tuesday.

Local media reported that the company, chaired by billionaire Xu Jiayin, who is known as Hui Ka-yan in Hong Kong, has asked employees, even those not in sales, to promote its offers on social media.

Other developers are providing discounts on individual projects in different cities. Country Garden, China’s largest developer by sales, cut the prices of homes in its The Clouds project in Guangzhou by about 10 per cent. For example, flats measuring 90 square metres are now selling for 2.7 million yuan (US$382,194), or 30,000 yuan per square metre. Earlier, similar sized flats were selling for 33,000 yuan per square metre after discounts.

Even though some leading companies, such as China Vanke, the country’s second-largest developer by sales, insist they will try and avoid steep cuts in prices, more are expected to announce discounts to drum up sales.

China developers sweat out a slowdown as home buyers wait for better deals

“We will not implement any large-scale price cuts across the country, but may make some adjustments and give some incentives when we launch the rest of the 20 projects by the end of the year,” Wang Haiyang, vice-president of Guangzhou-based developer Agile Group, said during an interim results briefing on Wednesday.

“No single developer would like to cut prices, considering that their profit is already very thin. But they have no choice but to do it when they cannot sell their flats,” said Gan Li, a professor at Southwestern University of Finance and Economics.

The property sector – a key pillar of China’s extraordinary growth over the past four decades – contributes 25 per cent of China’s domestic economic output, including all the sectors along its supply chain, such as cement and steel, according to Moody’s Investors Service.

Vanke defies property sector gloom, reports jump in first-half profit

Meanwhile, local governments, which own the land, rely heavily on sales to developers to fund everything from schools to roads. And concerns are growing the sector is losing its influence as a major economic driver. If that is the case, it could lead to a serious economic downturn in mainland China.

China saw its home sales rise year on year by 12 per cent to 15 trillion yuan last year; it reported a 13.7 per cent increase in 2017.

In July, however, China’s top 10 builders all recorded a month-on-month fall in contracted sales and a cumulative drop of 80 billion yuan.

China’s July home prices cool, as trade war, slower growth chill sales

“This year is likely to see close to zero growth in the country’s new home sales. The sudden slowdown will significantly put pressure on the country’s economy,” said Tommy Wu, senior economist at Oxford Economics.

The prices of old homes are expected to drop too, which will result in a sharp decline in the values of assets held by families. Home ownership makes up about 70 per cent of an average Chinese individual’s wealth.

“People will then be reluctant to spend money and buy stuff – driving down the country’s consumption, another major engine of its GDP growth,” said Gan.

Additional reporting by Martin Choi and Lam Ka-sing

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