Some Chinese property developers are heading into the May Golden Week holiday with a series of promotions, hoping to revive apartment sales after authorities across the country eased home buying and the obtaining mortgage loans.
The indebted China Evergrande Group, which has defaulted on its international bonds and is preparing for a complex restructuring, recently introduced offers, discounts and other purchase incentives for 10,000 apartments in 413 projects in nationwide around the next five Labor Day holidays that begin April 30.
“Protection of money provided in government-supervised accounts,” one of Evergrande’s advertisements said, an apparent effort to reassure buyers that the money they deposit for unfinished homes will not be used. for other purposes.
China Vanke Co., one of the country’s largest developers in a much stronger financial position, announced down payments of as low as 999 yuan, or $151, for apartments it is selling in the city from Foshan, Guangdong province. An announcement said people who confirmed their apartment purchases between April 30 and May 4 would also receive a set of 10 household appliances, including a vacuum cleaner, pedestal fan and blender. Prices start at 700,000 yuan, or $105,630, for Vanke’s apartments in the city.
In the coastal province of Jiangsu, an advertisement for a project by Poly Developments & Holdings Group Co.
, a state-backed developer, said buyers can put down a 5% down payment to buy a home. It also distributes Huawei-branded products and home appliances as sweeteners.
The first week of May has traditionally been one of two peak periods for apartment pre-sales in China, and sales promotions are common during this period, said Iris Chen, credit analyst at Nomura. This year, however, the national real estate market is in a deep slump, and many developers are in dire need of boosting sales after several months of decline.
Sales of new homes in China have plunged since last summer, when Evergrande ran into cash flow problems and construction was halted on hundreds of the giant developer’s projects. A loss of confidence in the wider real estate sector has ensued, with global investors shedding bonds from Chinese developers and home buyers worrying about not getting the apartments they paid for.
Chinese developers have been slashing the price of their apartments since late 2021 to get money to pay off their debts. Developers offered discounts and perks such as free parking spaces and management service fee waivers, but sales continued to decline. The country’s top 100 real estate developers saw a 53% drop in sales in March compared to the same month a year ago, according to data from China Real Estate Information Corp.
In addition to Evergrande, at least 10 Chinese developers have defaulted on their dollar debt, and even some stronger players, such as Sunac China Holdings Ltd., are struggling to stay afloat.
The Chinese authorities have tried to support the real estate market, which contributes significantly to the country’s gross domestic product. In the past six months, China’s central bank has twice cut the amount of funds banks must hold in reserve, in a bid to boost mortgage lending. Authorities also decided not to expand a property tax trial to more cities this year.
Some local governments have recently granted developers greater flexibility in the use of proceeds from the presale of their apartment. Since the beginning of this year, local governments across the country have also issued home buying incentives, lowering down payment ratios and mortgage rates, and providing subsidies to home buyers. In some cases, caps have been lifted on the maximum number of apartments individuals can purchase.
Banks across the country, meanwhile, have ramped up their mortgage approvals for homebuyers, according to industry research reports and Chinese state media.
On Friday, a Communist Party meeting chaired by President Xi Jinping for the first time discussed “optimizing the regulation of blocked pre-sale funds”, according to a statement carried by the state-run Xinhua news agency. The comment was taken by bond investors and analysts as a signal that Chinese authorities intend to further ease restrictions on the use of such funds by developers, helping to reduce their default risks.
However, consumer confidence in China is currently low – in part due to shutdowns and related restrictions in dozens of cities following recent Covid-19 outbreaks – and some analysts say aggressive developer sales tactics might not work this time.
“When you offer big discounts, home buyers would be scared,” said Bai Wenxi, chief economist for the China arm of real estate investment firm IP Global, adding that it could signal developers are desperate to sell. their apartments.
Homebuyers are still cautious with spending on homes given the slowing economy and resurgence of the pandemic, said Raymond Cheng, head of China research at CGS-CIMB Securities. Cities like Shanghai that have imposed shutdowns to contain rising new cases would experience moribund sales, he said.
For Evergrande, which had liabilities of about $300 billion in June last year and needs to sell assets, the holiday sale is a way to raise cash faster, Nomura’s Ms Chen said. The Chinese government recently granted new pre-sale permits allowing some struggling developers to sell apartments to home buyers.
Last year, the Guangzhou-based developer asked for government help after it was unable to repay debts, and said work resumed soon after on many of its projects. The 10,000 houses it sells include 2,000 apartments that have been completed, while the rest are unfinished.
In an Evergrande project in Chengdu, scheduled for completion in August 2023, apartments were advertised at between 12,000 yuan and around 13,000 yuan per square meter (about $180 per square foot), prices 40% lower than those of neighboring properties. More than 600 people have come to view the apartments in recent days, and only 11 of the 124 units for sale have not been taken, said a real estate agent working on the project.
Write to Cao Li at [email protected]
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