China Says House Prices Stable, But Developers See Big Drops

HONG KONG—According to government statistics, China’s housing market has cooled from its meteoric gains of years past, but it continues to turn. The average price of new homes rose 1.7% year over year in January and 1.2% in February.

Yet financial documents, apartment marketing materials, real estate agents and analysts tell a different story: debt-ridden developers are selling apartments at falling prices and, in some cases, offering deep discounts to obtain real estate. money at the door.

Since last summer, most residential property developers in China have reported sharp declines in contract sales. Many also revealed substantial declines in average selling prices this year, according to a Wall Street Journal analysis of their monthly stock market returns.

Industry giant Country Garden Holdings Co.

one of the most financially strong Chinese developers, reported a 14% drop in its average selling price in January and February compared to the same months in 2021. A mid-sized developer, Logan Group,

said its average sale price fell nearly 40% year-over-year in the first two months of 2022.

“The market has yet to show a clear recovery,” said Lin Bo, vice director of research at CRIC, a real estate industry data provider. “Supply, demand and prices are falling,” he added, referring to homes.

Property developers in China have been under pressure since the government imposed restrictions on their extravagant borrowing in the summer of 2020. Investors have dumped dollar bonds, pushing average yields above 30% recently and making it too expensive for most sponsors to raise funds in the debt markets. To avoid defaults, many real estate companies are rushing to sell apartments, which are now one of their main sources of cash.

Earlier this month, Soho China,

a developer of mixed-use commercial and residential buildings, said it would sell nine projects in Beijing and Shanghai at a 30% discount and use all proceeds to pay off debts

In Zhengzhou, the capital of central China’s Henan province, property developers are struggling to sell their inventory of homes while many buyers stay away, according to real estate agents and online chat rooms. line. Over the past decade, industrialization and rapid urbanization have transformed Zhengzhou into a megacity to which real estate developers have flocked.

A housing estate in Shanghai. Megacities like Shanghai, where property values ​​have risen the most, have imposed price limits and taxes to rein in prices.


Photo:

News by Qilai Shen/Bloomberg

“People have lost confidence,” said a real estate agent named Li who sells apartments in Zhengzhou, referring to home buyers. “On the one hand, they fear that the developers will not be able to complete the construction; therefore, they will lose money. On the other hand, they fear that prices will continue to fall.

Some developers offered big discounts to attract buyers. On social networks, an apartment of China Vanke Co.

– another stronger developer – which was listed at 21,500 yuan per square meter, or roughly the equivalent of $314 per square foot, last July, was recently marketed by agents at a discount of around 19 %. Meanwhile, some local homebuyers complained online last month about similar discounts being offered on a country garden project in Zhengzhou, saying it was having a negative effect on the value of apartments they had recently bought.

China Vanke did not respond to a request for comment. Country Garden said it “sometimes adjusted the prices of certain buildings in certain projects” in Zhengzhou, depending on the market situation and the sales prices of neighboring projects, and called it a normal promotional practice.

Economists and property analysts say one of the main reasons the country’s official house price data has shown muted changes is its composition. The national index tracks property prices in 70 of China’s roughly 700 cities, and the biggest and wealthiest cities like Beijing, Shanghai and Shenzhen have seen stronger price increases.

However, the average sale prices reported by developers can vary widely depending on the companies’ geographical coverage, the timing of project launches and the discounts they have given to buyers, said Franco Leung, head of ratings. real estate companies in China at Moody’s Investors Service.

Government house price data also serves as a metric to influence the market, and officials have an interest in smoothing the data and keeping it relatively stable, some analysts say. Sharp price drops in official figures could make people even less eager to buy homes, worsening housing market conditions.

Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, wrote in a newspaper column last month that the relatively flat January house price data was aimed at “easing the pessimistic mood” in the sector and preventing a downward trend in new homes. prices. He also noted that the government’s goal is to keep land and house prices stable and that the gradual decline in year-on-year price growth is helping guide market expectations.

China started compiling its housing price index about two decades ago. The National Bureau of Statistics decided on the list of 70 cities in 2005, when many other Chinese cities were still villages. Some analysts believe it does not reflect the reality of today’s real estate market.

Unfinished apartment buildings in Shanghai earlier this year.


Photo:

News by Qilai Shen/Bloomberg

The index focuses disproportionately on cities with higher housing prices, analysts said. Those who have experienced the largest price declines are often not in the index.

“I think most of these developers’ properties are in lower third or fourth tier cities,” said You Zipei, an analyst at Huaxi Securities..

China’s tier classification system is based on a city’s population, level of political administration, and economic growth.

Third- and fourth-tier cities are economically and industrially weaker and have limited housing demand compared to first- and second-tier cities, according to Zhang Bo, director of 58 Anjuke Real Estate Research Institute.

Unsold houses accumulate in tier three and four towns. According to a recent report by the Shanghai E-House Real Estate Research Institute, the number has been increasing for nearly 40 months.

To generate sales, some developers have offered free cars, parking spaces, decorations or household items to homebuyers when they cannot lower the price of their apartments, according to Chinese state media.

Logan Group, which has a strong presence in southern China, is promoting some of its properties in the region. One in Liuzhou, a third-tier city in Guangxi province, offered buyers incentives including discounts of more than 20% on the price of property, five years of management fees and a raffle for appliances appliances.

In Xinyang, a third-tier city in Henan Province, a developer recently announced, “Buy a house and get a luxury car. Selected apartment buyers can get cars worth 100,000 yuan, equivalent to about $16,000, while some villa buyers could get a Mercedes-Benz worth 300,000 yuan .

The official government price index shows the general trend in China’s property market with a few months lag, said Logan Wright, director of China research at Rhodium Group, a consultancy, but it does not reflect the magnitude of price movements.

“It could be for a number of reasons: city-sampled projects and housing, government price controls, hidden price adjustments by developers using different incentives,” he said.

An ongoing residential development in Shanghai last year.


Photo:

News by Qilai Shen/Bloomberg

To formalize a transaction, home buyers must register their properties with the local housing office after signing a contract with a developer or seller. Local statistics offices sample recorded prices, according to analysts and real estate agents.

Yang Hongxu, deputy director of real estate service provider E-House China, said price controls were a key reason official house price data held steady as market price swings took hold. were more important, in both directions.

Megacities like Beijing, Shanghai and Shenzhen, where property values ​​have risen the most, have imposed price limits and taxes to rein in prices. Some cities have also imposed minimum prices in recent months to prevent house prices from falling further.

Some analysts suspect local housing offices are delaying the registration of some properties with very high or very low prices to keep official data relatively stable from month to month. “They control the prices that way,” said Mr. You, of Huaxi Securities in Shanghai.

Write to Cao Li at [email protected]

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