Chinese policy noose tightens around developers' necks; developers concoct elaborate sales tactics including "group buy" and air quality

“三限”逼开发商砸锅卖铁 武汉房价下跌或掀高潮. China has three restrictive policies on credit, price and sales. The credit restrictions are coming from the central bank and also the banking sector. Price limits and sales restrictions are now expanding into second and third tier cities.
This paragraph says 48 cities are using sales restrictions and that this restriction is spreading to more second and third tier cities. Only Zhuhai and Zhongshan are using price controls at this time. This article is from a Wuhan news source and goes on to discuss the Wuhan property market, with expectations of a mild price decline.

This next story discusses a sales tactic used by a developer in Qingdao designed to overcome home buyers' fear of falling prices.
“差价补偿”青岛探秘 保值还是促销?(Making up the price difference: preserve value or promote sales?)
A developer used to have a policy that said if the price of real estate fell relative to new properties, the developer would pay for 3 years interest cost. Now, the policy is for two years and it says if the price of a new property is less than 120% of the current price, the developer will buy it back. Although this article says the buyers "aren't buying it."

This "spread compensation" is a new tactic for reversing falling sales. One adviser said the policy is a win-win if it calms buyers and increases sales, but that this policy alone won't reverse price declines. Other analysts were more pessimistic, saying these local policies could generate some cash flow, but can't stem the larger trend of falling prices. According to an online poll, 86% of netizens believe the policy is a sales method and developers cannot meet this promise over the long-term. I'm inclined to agree, since continued price declines could lead to bankruptcy of the developers even without this policy.

The Chinese refer to companies such as Groupon and the many Chinese copycat firms as "group buy" websites. Now, people are looking to sell homes using this strategy.“团购”买房 风险隐现("Group Buy" Buy Homes: A Glimpse of Risk)
Can you "group buy" homes? It's not only possible, but discounts can be as much as 30% to 40%. This seems to let developers earn large profits, but behind the profits are hidden risks. These invisible transactions appeared in the Northeast and are spreading.
The article goes on to discuss some risks, the first is that buyer's must sign a contract, not transact online; the second is that some firms are making advance sales in advance of getting their licenses. One of the latter cases is in Changchun, Jilin province. At the end of the article, Centaline North China's general manager Li Wenjie says the government is protecting the developers, that since real estate faces government regulation now, the local governments are tacitly approving this sales strategy.

The Groupon business model has been analyzed every which way. From what I understand of it, the merchants are generally selling below cost, but the goal is to attract new repeat customers. Whether those customers materialize is the major question for the strategy, although the "group buy" model could survive for awhile until word that it's a bad deal for merchants got around. It also could do well with liquidations and firms such as the dollar stores that buy bulk inventory from bankrupt firms. Even if the model works though, does it make any sense for a real estate developer that will probably never have repeat business? This screams of what we saw in October when Vanke was the first developer to cut prices: a move to grab sales in a shrinking market. This isn't a novel sales strategy, but an act of desperation.

因PM2.5之名 买房新攻略 (New strategy: buy a house because of PM2.5)

If you pay attention to Chinese news, a hot topic over the past several weeks is the air quality standards. The government has the capability to measure pollutants as small as 2.5 microns, but it chooses to only report PM10 because the PM2.5 number would expose the true level of pollution. This policy has been heavily mocked by netizens on Weibo and message boards, in addition to editorials in many major papers. This article discusses the pollution levels, noting that only the very northern, southern and western (Tibet and Qinghai) regions of China, plus sparely populated areas, have low pollution. Urban developers are pushing "micro-climates", with local factors such as parks or rivers contributing to better air quality within a city. They also claim apartments above the 12th floor have less dust.

No comments:

Post a Comment