China property

China’s debt-laden developers offer discounts and giveaways to sell more flats to boost cash flow

Buyers are offered varying levels of discounts off prices and more attractive payment conditions such as longer initial deposit payment period

PUBLISHED : Wednesday, 26 September, 2018, 10:04am
UPDATED : Wednesday, 26 September, 2018, 10:03am

China’s property developers are aggressively ramping up marketing efforts to sell more flats to boost cash flow as buyers in the biggest mainland cities are in no hurry to make purchases in the current market slump.

Developers in first-tier Chinese cities have adopted numerous marketing tactics to capitalise on the holiday period, from the Mid-Autumn Festival this week to the upcoming National Day holiday on October 1, a traditional peak season for property sales. Tactics range from offering coupons for discounts amounting to as much as hundreds and thousands of yuan, referral schemes where a buyer gets a discount for introducing another buyer, and slashing prices to undercut the market.

“The market outlook has changed. Buyers are no longer in a hurry to buy, which makes developers willing to compromise on prices [in Shanghai] in exchange for volume, and thus ensure faster cash recovery,” said Lu Wenxi, a senior analyst with Centaline Shanghai.

China’s debt-laden developers are anxious to offload their stock as proceeds from pre-sale flats have become a major source of funds after Beijing put a curb on lending to contain soaring property prices.

Developers downcast over survival as China gets serious on stabilising home prices

Take China Evergrande Group, the country’s third-largest developer by sales, which has adopted multiple tactics to boost sales between August 30 and October 10.

Buyers are no longer in a hurry to buy, which makes developers willing to compromise on prices [in Shanghai] in exchange for volume, and thus ensure faster cash recovery
Lu Wenxi, Centaline Shanghai

Buyers are not only promised an 11 per cent discount for its 646 projects across the country, but those who pay up in entirety within three months are also given a further 7 per cent discount.

In addition, buyers are also allowed to complete the initial deposit payment – at a minimal 5 per cent of sales price – over three months, compared with having to pay up at one go previously.

Those who successfully referred a second person to buy a home will be rewarded with a 30,000 yuan to 50,000 yuan discount.

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Sales in China’s first-tier cities have slowed since 2017 when controls were imposed to cool overheating in the property market. The measures have included increases in the minimum down payment for a second home to as much as 80 per cent of the sale price and in mortgage rates to keep speculators at bay. Local governments have also plugged regulatory loopholes to prevent speculators from using divorces and companies to secure more loans to buy flats.

“In Shanghai there is a heavy supply pipeline in remote suburban areas. Developers with projects in these areas are under immense pressure; the registered number of interested buyers for some projects are below 10,” said Lu.

China Merchants Shekou Industrial Zone Holdings is giving away BMW cars to buyers of its villas in the outskirts of Shanghai, a development hit by lacklustre interest.

In Beijing, less than 40 per cent of more than 9,000 units from 18 developments launched this month were sold, according to Beijing News.

Guo Yi, chief analyst with property marketing firm Heshuo said developers were unlikely to cut prices further in Beijing as they had paid high costs for the land sites on which the developments stand.

“But with more projects built on cheaper plots acquired between 2017 and 2018 coming into the market, there will be more room to cut prices,” Guo said.