China developers resist pressure to cut prices, leading to market standoff

On booming Jinshazhou island between Guangzhou and Foshan, developers touting new projects face sluggish sales due to their unwillingness to slash prices, boding ill for the mainland economy that has showed fresh signs of slowdown.

Even after smaller discounts are applied, a 93 square metre, three-bedroom flat in the Starry Sands project, developed by Guangzhou-based Yuexiu Property, costs 1.7 million yuan (HK$2.14 million), or about 18,000 yuan per square metre. The South China Morning Post was the only visitor in more than an hour last Thursday afternoon.

About half an hour's walk from the project - taxis are hard to come by here - Poly Real Estate, another state-owned developer, is trying to offload the remaining 300 units in The West Coast. It is asking 1.45 million yuan for a 79 square metre two-bedroom flat, the lowest price it is willing to offer.

Both prices are little changed from a few months ago, in sharp contrast to expectations that developers would offer big discounts to speed up sales during the so-called Golden September and Silver October period, this year's last chance to hit full-year sales targets to protect their credit ratings and share prices. "I will continue to wait and see," said a man in his 40s who only gave his surname as Xu. He was interested in a two-bedroom flat at the Poly project because of its proximity to good schools.

Despite the cool reception from potential buyers, Yuexiu salesman Ken Hu is not worried. "A lot of clients want to buy but are restricted by purchase curbs," he said. "There is almost no supply of land in the future."

Hu speaks for many developers who want to maximise profits despite a cooling market, betting that the central government will eventually come to the rescue with looser monetary policy because Beijing needs a strong property sector to boost economic growth.

Major activity indicators in July and August suggested the economy might have deteriorated again after a brief pick-up in the second quarter on mini-stimulus measures.

More economists have recently started to predict that the central bank would soon lower deposit requirements and mortgage rates for first-home buyers, after about 40 cities eased home purchase restrictions. The curbs remain in Beijing, Shanghai, Shenzhen and Guangzhou.

Last week, mainland media reported that the People's Bank of China had instructed the four biggest state lenders to regard families who have paid off mortgage loans as first-home buyers, regardless of how many homes they already own.

"The ongoing property downturn and weak economic growth have prompted and will continue to trigger additional policy support from the government," UBS chief China economist Wang Tao said in a note.

"We expect these measures to help ease the property market downturn to an extent, but not to reverse the downturn or drive through a visible rebound."

Despite debate about the likelihood and impact of new policy support, no authoritative clarification has been made so far.

In Guangzhou, mortgage rates for first-home buyers have edged down from a premium of 5 to 10 per cent over the benchmark rate in May. Those buying Yuexiu's Starry Sands can apply for a loan at 2 per cent above the benchmark rate, while Poly said it can help clients with a benchmark rate of 6.55 per cent for loans of five years or longer. However, those applying to borrow from the much cheaper local housing provident fund will have to switch to more expensive commercial mortgage loans as the fund is running out of its annual lending quota.

A report by Rong360, a mainland search engine for financial products, showed the average mortgage rate in Guangzhou and Shenzhen picked up in September from August, while the level was unchanged in Shanghai and dropped further in Beijing.

Data from consultancy E-House China showed housing sales fell 3 per cent in the first three weeks of September in Guangzhou from a month earlier, and were 23 per cent below a year earlier. Beijing also suffered contraction during the period, but sales picked up in Shenzhen and Shanghai.

Combined residential property sales in 18 second-tier cities, including Nanjing and Xiamen, fell 4 per cent from a month earlier, but jumped 42 per cent in six third-tier cities it monitored. The consultancy said although sales showed signs of stabilisation, full recovery was remote due to tight credit policy and developers' reluctance to deepen price cuts.

"The focus will be on credit policy in the next few months," E-House said.

"As there is only one quarter left in the year and most listed developers haven't achieved 50 per cent [of their full-year sales target], it's time for them to give up illusions and try to lure back home buyers."