Tepid domestic residential market resorts to discounts again

Mid-March is here, but the spring seems to be elusive in China's residential property market, which is riddled with slow sales and hence resorting to fresh discounts to destock.

Experts suggested the Chinese lunar Year of the Pig, which began on Feb 5, may prove to be a difficult one for sellers of residential property in China. Hence, developers are leaving no stone unturned to hardsell homes.

Xu Jiayin, chairman of China's property developer Evergrande Group, announced a marketing campaign this month. The Shanghai-based China Business News reported that the group has 690 projects, and Evergrande will offer a 10 percent discount on residential properties, and 20 percent on retail properties.

Since 2011, around the onset of the Chinese New Year, Evergrande has been offering discounts to homebuyers.

Last year, Evergrande, and other well-known property developers such as Vanke and Country Garden, were among a slew of firms that offered large discounts on their new projects.

Shenzhen-based Evergrande sold 52.4 million square meters of gross floor area in 2018, second only to Country Garden's 77.3 million sq m, according to data from China Real Estate Information Corp.

Home sales have brought in capital of 551.1 billion yuan ($82 billion) for Evergrande last year. It ranked third among domestic developers, trailing Country Garden (728.7 billion yuan) and China Vanke (606.9 billion yuan).

"The central government is expected to continue its tight control on the real estate market and strictly supervise real-estate financing, a situation which will cause some challenges to developers through 2019," said James Shepherd, who heads China-related realty research at Cushman & Wakefield.

Top 100 property developers in China saw a month-on-month sales revenue decline of almost 23 percent in February, and that for the top three was nearly 11 percent.

The month-on-month drop was partly due to multiple factors like a seasonal sales low caused by the Chinese Spring Festival holiday. However, this year, sales were marked by a year-on-year low as well.

Evergrande's contract value of total sales in January and February was about 64.7 billion yuan, down 42.5 percent from a year ago, Securities Daily reported.

The sales decline is across the board. In the housing market, some 9.6 million sq m of gross floor area were traded in 29 major cities in February, down 53 percent from January, and down 28 percent from the same period of 2018, a CRIC report said.

On Feb 25, the official WeChat account of China Vanke published an internal speech by Yu Liang, chairman of Vanke, in which he called upon the company to keep focus on survival this year.

Since Feb 12, widespread layoffs have been reported in Country Garden with some divisions getting downsized by half, according to National Business Daily, which quoted company insiders.

"The home market faces pressure for adjustment, and that for market bellwethers is even higher," said Lu Wenxi, a researcher with property consultancy Centaline Shanghai.

In order to bolster their capital flow and strengthen their resilience to withstand risks, real estate developers will take various measures, he said.

A Savills China research report stated that in the short term, China is not expected to expand financing channels for real estate companies.

However, large-sized companies will continue to have more advantages in receiving loans. Meanwhile, the government would continue to allocate resources to promote development in areas such as renovation of shanty towns, affordable housing projects and rental housing.

Faced with high repayment pressure, domestic property owners are expected to offload their properties to pay off their debts.

The market is forecast to see a price correction this year when sellers face pressure to sell off properties in the tepid market, the Savills report stated.

Though some local governments might moderately relax local home-buying restrictions, Shepherd expected the real estate market to remain stable in the next 12 months.