China developers try to revive moribund home sales in Golden Week

Some Chinese real estate developers are heading into the May holidays of the golden week with a flash of campaigns in hopes of boosting apartment sales after authorities across the country made it easier for people to buy homes and get mortgages.

Debt-ridden China Evergrande Group, which has defaulted on its international bonds and is preparing for a complex restructuring, recently rolled out deals, discounts and other purchase incentives for 10,000 apartments on 413 projects nationwide around the upcoming five-day Labor Day holiday, which begins April 30 .

“Secure money protection on state-monitored accounts,” stated one of Evergrande’s advertisements, an apparent attempt to assure buyers that the cash they put into unfinished homes will not be used for other purposes.

China Vanke Co., one of the country’s largest developers, which is on a much more stable economic footing, has announced initial payments of as little as 999 yuan, equivalent to $ 151, on apartments it sells in the city of Foshan in Guangdong. the province. An ad said that people confirming their bargain purchases between April 30 and May 4 would also receive a set of 10 household appliances, including a vacuum cleaner, standing fan and food blender. Prices start at 700,000 yuan, equivalent to $ 105,630, for Vanke’s apartments in the city.

In the coastal Jiangsu Province, an advertisement for a project of the Poly Developments & Holdings Group Co.

, a state-subsidized developer, said buyers can make a 5% down payment to buy a home. It also distributes Huawei-branded products and household appliances as sweeteners.

The first week of May has traditionally been one of two peak periods for pre-sale apartments in China, and sales promotions are common during this period, said Iris Chen, a credit analyst at Nomura. This year, however, the domestic real estate market is in a deep crisis, and many developers have an urgent need to revive sales after many 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 by hundreds of the giant developer projects. A loss of confidence in the broader real estate sector followed, with global investors dumping Chinese developer bonds and home buyers worried they would not get the apartments they paid for.

China’s developers have been lowering their apartment prices since the end of 2021 to get money to pay off their debts. Developers have offered discounts and perks such as free parking spaces and exemptions from administration fees, but sales have continued to slide. The country’s top 100 property developers saw a 53% drop in sales in March from 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.

While Shanghai remains locked in the middle of China’s biggest Covid-19 outbreak, residents go to social media to say something about food shortages, or they swap with neighbors. Anxiety and hunger make many question Beijing’s pandemic strategy. Photo: Chinatopix Via AP (Originally published April 14)

Chinese authorities have sought to help support the real estate market, which is a major contributor to the country’s gross domestic product. In the last six months, China’s central bank has twice lowered the amount of funds that banks have to keep in reserve, in a row to help increase mortgage lending. Officials have also decided not to extend a property tax case to more cities this year.

Some local governments have recently given developers more flexibility to use their pre-sale revenue from apartments. Since the beginning of this year, local governments across the country have also issued incentives for home purchases by lowering repayment rates and mortgage rates and providing subsidies to home buyers. In some cases, the ceiling has been lifted for the maximum number of apartments that private individuals can buy.

Banks across the country have meanwhile accelerated their approval of mortgage loans to home buyers, according to industry research reports and Chinese state media.

On Friday, a Communist Party meeting led by President Xi Jinping mentioned “optimizing the regulation of presale deposit funds” for the first time, according to a statement released by the state-owned Xinhua News Agency. The comment was taken by bond investors and analysts as a signal that Chinese authorities intend to further loosen restrictions on developers’ use of such funds, helping to reduce their default risks.

However, consumer confidence in China is currently low – in part due to closures and related restrictions in dozens of cities following recent Covid-19 outbreaks – and some analysts say developers’ aggressive sales tactics may not work this time around.

“When you offer big discounts, home buyers would be scared,” said Bai Wenxi, chief economist at the Chinese division of real estate investment firm IP Global, adding that it could signal that developers are desperate to sell their apartments.

Homebuyers are still wary of housing costs due to the declining economy and recurring pandemic, said Raymond Cheng, CGS-CIMB Securities’ head of China research. Cities like Shanghai, which have introduced lockdowns to contain rising new cases, would experience dying sales, he said.

For Evergrande, which had about $ 300 billion in liabilities in June last year and has to sell assets, holiday sales are a way to raise cash faster, Nomura’s Ms Chen said. The Chinese government has recently granted new pre-sale permits that allow some troubled developers the opportunity to sell apartments to home buyers.

The Guangzhou-based developer last year sought state aid after being unable to repay his debt, and said work was resumed on many of its projects shortly after. The 10,000 homes it sells include 2,000 apartments that are finished, while the rest are unfinished.

At an Evergrande project in Chengdu – whose completion is scheduled for August 2023 – apartments were advertised for 12,000 yuan to about 13,000 yuan per square meter (equivalent to about $ 180 per sq ft), prices that were 40% lower than nearby properties. More than 600 people came to see 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 li.cao@wsj.com

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