November 17 -- China Vanke (000002.SZ,RCode:200002:) did not deny media reports that it was mulling price cuts of more than 20 percent for its developments in Shanghai, reports 163.com, citing a source from the company's marketing department.
The source said the largest property developer in China will fix the prices of its developments according to market trends, and that the launch dates and sale prices of two upcoming developments in Shanghai has not been determined.
According to an official response from Vanke, the company had always held the belief that prices are determined by the market, and developers could only discover what the market prices are, and could not unilaterally set prices.
China Vanke will fix reasonable selling prices for its developments, in line with the real market situation, according to the company.
To disprove market suspicions that Vanke is facing liquidity pressures, board secretary Tan Huajie said the company had cash on hand of 33.9 billion through the end of the third quarter, 14 billion yuan more than the figure at the end of the third quarter of 2008.
It was reported that Vanke will launch a development in Qingpu, located on the outskirts of Shanghai, on November 19. Part of the development will consist of small apartments with an area of 79 square meters. The lowest price of the units will be set at approximately 850,000 yuan, or about 10,000 yuan per square meter.
According to China Real Estate Information Corporation (CREIC), projects launched by Vanke since July had average selling prices of between 14,000 yuan and 15,000 yuan per square meter. This indicates the upcoming developments will be launched at discounts of close to 30 percent.
A number of industry insiders said the discounted prices are close to, or could be below the construction costs.
Vanke did not respond to remarks by unnamed analysts that it is trying to grab market attention at the cost of recording losses.
According to data, the two upcoming developments had respective floor prices of 5,281 yuan and 6,000 yuan per square meter.
Including construction cost of 3,500 yuan, decoration cost of 1,000 yuan, tax and other finance charges of 2,500 yuan, the break-even cost of the two developments is approximately 12,000-13,000 yuan per square meter, said an analyst with CREIC.
Vanke president Yu Liang, had previously said the company will alter its strategy, and will offer discounts to overcome the tough operating conditions next year.
Shares of China Vanke were up 0.41 percent to trade at 7.32 yuan per share at 9:52 today.