October 25, Chinese property developers are slowly getting more comfortable with the prospect of reducing prices at residential projects as transactions fall and prices stall, with larger market players including China Overseas Land & Investment Ltd. (0688.HK) and Longfor Properties Co. Ltd. (0960.HK) taking the plunge.
Often wary of lowering prices in case they trigger a race-to-the-bottom price war, more and more property developers appear willing to reduce prices this year as they look to withdraw as much cash as possible from a cooling market and lower housing inventories that are reaching record levels in some cities.
Industry insiders have interpreted the government’s recent statements on the housing market as a strong signal that the current -- not to mention further -- housing curbs will go on for much longer than previously expected.
China Vanke Co. Ltd. (000002.SZ) and Poly Real Estate Group Co. Ltd. (600048.SH), China’s largest and second-largest developer by market value, both reported sales declines for the past 2 months from a year earlier.
Price Reductions
Earlier this month Longfor Properties slashed prices at a project in Shanghai from RMB 18,000 to RMB 14,000 per square meter, leading to buyers who had recently bought units there at the higher price to gather in protest on Oct. 22.
China Overseas Land also cut prices at a project from RMB 22,000 to RMB 17,000 per square meter, leading to another public demonstration of dissatisfaction from recent buyers.
“[Some] developers in Shanghai already started to cut prices back in May and June, except for larger ones like China Vanke, as they were quite optimistic [about the direction of market] back then,” said Zhou Zhifeng, managing director of Jones Lang LaSalle’s Shanghai branch.
Zhou told the China Business News that third-quarter housing transactions were down from the prior quarter. Q3 is traditionally a peak buying season as the annual Mid-Autumn Festival and National Day holidays fall in that period.
“It might not be that soon before we start to see large-scale price cuts in Shanghai, but in surrounding Suzhou, Wuxi and Hangzhou, a lot of properties are [already] being sold at a 10%-15% discount,” Zhou said.
Housing transactions in Shanghai in the week Oct. 17-23 dropped 19% week-on-week, while home prices averaged RMB 21,247 per square meter, down 5% from the prior week, according to data compiled by China Real Estate Information Corp. (CREIC).
“In the first 3 weeks of this month, only 302,700 square meters of new homes were sold in Shanghai, down 72% from the same period last year and a 7-year low based on our data,” Xie Jianxiong, a senior analyst at CREIC, was quoted as saying by the official Shanghai Securities News.
Home Price Growth Slows
In September, 59 out of 70 cities monitored by the government saw new home prices increase at a slower pace from the same month last year, compared with 40 cities in August, the National Bureau of Statistics said on Sept. 18.
“The rapid rise in property prices has been remarkably contained, but we still need to consolidate the results and closely monitor the market,” bureau spokesman Sheng Laiyun said in a press conference on the day the statistics were announced.
“We will not relinquish control as real estate is a pillar industry to China’s economic development, and will continue to monitor the sector’s changes to further consolidate the results of macro-control,” Sheng said.