China’s property developers are pricing their new home projects at a discount to drum up sales amid market-cooling measures, seeking to boost cash as a sliding currency raises the cost on debt repayment.
Some builders are cutting as much as 10 per cent off their selling prices to boost cash flows, after latest official data showed the economy grew last quarter at the slowest pace since records began in March 1992.
The economic report was followed by data showing September new home prices (excluding state-subsidised housing) in 70 Chinese cities rose by the smallest since February.
“They are still under pressure to sell more homes in the coming two months,” said Gao Shen, a Shanghai-based independent analyst specialising in socio-economic issues. “They may not be able to sustain the expected sales increase next year given the government’s resolve in cooling the property sector.”
Tightened mortgage rules, price caps on new apartments, and more stringent approval process are among measures taken by the central and local governments since 2016 to tamp price speculation. Banks have also been asked to curb easy credit to developers.
Chinese developers, among the biggest indebted companies, are also eyeing the yuan performance. The local currency weakened past the psychological 7 per dollar level in August, inducing concerns that further depreciation may be in store amid a tense trade ties with the US.
‘Golden week’ property sales plunge in major Chinese cities amid slowing economy, tight mortgage conditions
The currency has stabilised since mid-October at about 7.07 per dollar, which central bank Governor Yi Gang described as an “appropriate level”. A weaker yuan increases the cost of servicing foreign-currency debt.
Moody’s Investors Service said foreign-currency debts accounted for a quarter of Chinese developers’ total debt in September, up from 20 per cent at the end of June 2018.
There are some bright spots in the market that suggest the sector could enjoy some breathing room from policy squeeze and downbeat sentiment caused by the Sino-US trade war.
Contract sales by 20 mainland developers in September climbed 27 per cent on year, according to a report by CGS-CIMB Securities, beating expectations as developers slashed prices by 5 to 10 per cent to lure buyers. Strong sales momentum could be sustained through year end, it said in a report.
For example, China Vanke raked in 49.3 billion yuan (US$6.97 billion) in contract sales, up 14 per cent from a year ago. Cifi Holdings recorded a 30 per cent jump to 20 billion yuan.
“With more project launches over October to December, we expect developers to maintain their sales momentum, which could catalyse share prices,” CGS-CIMB Securities added.
China’s economic growth worse than expected, sinking to new low of 6.0 per cent in third quarter amid US trade war
While the fourth quarter is regarded as a seasonally strong period for home sales, some analysts warn against exuberance.
Forty of the mainland’s top 100 developers have disclosed their contract sales for the January-to-September period, according to Oriental Real Estate Financial Weekly. Half of them has yet to achieve 70 per cent of their annual sales target, it said.
Price discounting will continue for developers to achieve their year-end targets, according to said Sam Xie, head of research at CBRE China. ``But the Chinese government remains determined to cool the property sector, the market is unlikely to post a big jump in sales next year.”
More from South China Morning Post: