2011-11-02

China developer "price cut wave"; price declines reach third tier cities

New apartment prices are being cut 30% in Shanghai. Prices are also falling in Beijing, with industry leader Vanke (万科) cutting some prices by just under 20%. There's talk that Vanke's price cuts could lead to a wave of selling, but it looks like the wave is already forming.

Below are some Chinese articles, with a roughly translated headline and my summary/comments.

万科再降价:楼市价格拐点已经发生? (Vanke cuts prices again: has the real estate prices already turned?)

1926亿存货压顶 万科全线降价?! (192.6 billion in inventory Vanke cuts everything?!) This article discusses Vanke moving quick to offload property. The firm does a high turnover and with sales slowing, lower prices will move units. If a major slowdown in commencing, this also allows the firm to sell ahead of the competition, though the article doesn't explore this angle.

开发商“储粮过冬” 不缺钱也降价自保 (Real estate developer's "winter grain", not short on cash but cutting prices to protect themselves) This one is interesting because one of the developers (Fantasia; 1777.HK) discusses how the action of the individual firms to protect themselves can lead to a self-fulfilling deflationary cycle as developer cash is pulled out of the real estate market. The bubble is both a demand and supply driven phenomena, for example developers bid up land prices at auction.

I'm keeping my eye on prices in cities other than Shanghai and Beijing, including the smaller third tier cities. These areas can still grow and their development lags the rest of the country. Price declines should be concentrated in the most expensive and overbuilt cities, but if this turns into a major crisis, the smaller cities will also be impacted.

楼市速递大话武汉“降价潮”将在11月来临 (Wuhan price cuts coming in November)
As real estate policy control continues, first and second tier cities have all seen different degrees of discounts, after Shanghai's 30% discount emerged, Beijing, Shenzhen, Guangzhou, Hangzhou, etc. price cuts have continuously grown in number. Wuhan's real estate deals were down in October, following the 34% drop in September. Real estate insiders believe the price cutting wave is coming in November.
在房地政策的不断调控下,一二线城市各大楼盘都出现了不同程度的打折现象,上海涌现出的“7折降价军团”后,北京、深圳、广州、杭州等地降价楼盘不断增多。武汉楼市成交量继9月下跌34%后,10月持续低迷。业内人士认为,武汉楼市“降价潮”将在11月来临。

青岛10月成交量创近三年最低 (Qingdao October contracts hit three-year low)

Here's news from Hebei, a province that surrounds Beijing, but that isn't nearly as wealthy. 河北多市房价跌幅加深,唐山市房价趋于下行 (Hebei multi-city price declines deepen; Tangshan trend is down) In October, price declines reached 1.6% in Langfang, a city that borders Beijing; prices in Tangshan fell 1.3%, while a sample of 7 cities in Hebei saw prices down 0.3%. Prices were flat in several large cities. (These are average prices in each city, not the price for new homes, which are also seeing similar double digit drops.)

地产龙头降声不断廊坊跌幅全国第一 This article says Langfang was the first city to see price declines in China, with prices now below July levels. This article also notes that the price declines are about 1% or less in most cities, but many cities are still seeing price increases including, of all places, the famous "ghost city" of Ordos. However, the article notes that only 40 cities saw rising prices in October, down 14 from September.

银十消逝 保定楼市提前入冬 (Silver October fades, Baoding market enters early winter) This article mentions a phenomena we saw in the U.S. just past the peak: discounts and special deals.
开发商:优惠+打折=真金白银
金九结束,不甘心的开发商纷纷绞尽脑汁在银十创新出形形色色的优惠活动,如力推“特价房”、“买房送家电”、“买房送旅游”、“买房送Ipad”、“买房抽大奖”或不时搞一些演艺活动等噱头纷纷出现,根据新浪乐居保定站统计,10月份,保定市内所有楼盘都推出了优惠活动,而绿城小镇、万和城等楼盘推出了降价幅度不小特价房,最高每平米降价500元
Developers: Deals + Discounts = Real Money
At the close of Gold September, developers racked their brains in Silver October and brought forth all manner of deals such as "Specially Price Homes", "Buy a House, Get Home Appliances", "Buy a House, Get a Vacation", "Buy a House, Get an iPad", "Buy a House, Win a Grand Prize", they also had artistic performances and comedy shows, [the developers] also cut prices, the highest was 500 yuan per square meter.
Baoding has much lower prices than Beijing, but that cut is at least 5% and could be 10% or more depending on the area. Overall, the national average price changes were mixed in October, but prices have declined in smaller cities. The government has said it would keep real estate regulation tight at least until the end of the year. In the next couple of months, we'll see whether this trend turns into a serious real estate crisis, or just another growth hiccup for China. Below is a chart of Guggenheim China Real Estate (TAO).

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