Nothing is going right for Hangzhou at this moment. Walmart will be closing its Zhaohui store in that city on April 23 as a part of its overall plan to dump marginal locations—about 9% of the total—in China.
Thanks to the world’s largest retailer, another large block of space in Hangzhou, the capital of Zhejiang province, will go on the market at a time when there is generally too much supply. The problem is especially pronounced in the city’s premium office market. Hangzhou’s Grade A office buildings at the end of 2013 had, according to Jones Lang LaSalle, an average occupancy rate of 30%.
The real weakness, however, is Hangzhou’s residential sector. The cause is simple: massive overbuilding. Sara Hsu of the State University of New York at New Paltz writes that Hangzhou faces “burgeoning swaths of empty apartment units.”
Hangzhou’s market has not yet collapsed. There are still secondary sales, for instance. Singapore’s Straits Timesreports Allen Zhao, a businessman, has been looking to sell his two-bedroom flat in Hangzhou for 2 million yuan. His neighbor just let go a similar unit for 1.7 million. If Zhao also sells for that amount, he will make a profit, but he will be disappointed. “That is not much more than the price I paid in 2012,” Zhao told the paper. “Now I’m regretting not selling earlier—more bad news about the property market keeps coming in every day.”
New homes also face price pressure. Developers in Hangzhou are now offering deep discounts, and investors and owners are noticing. And not just in that city. “It seems that the 30% price cut in Hangzhou really changed the way Chinese people think about real estate,” writes Anne Stevenson-Yang of J Capital Research, “and I doubt there is any turning back from here.”
Not every developer is offering such deep discounts, but as Stevenson-Yang tells us the city has become the symbol of a market in distress. China Central Television on the first of this month devoted a segment to the problems of the “unstoppable price decrease” in Hangzhou property in its Economic 30 Minutes show, and discounts in that city, the Wall Street Journalnotes, could be “a signal of broader market weakness ahead.”
Real estate data lags so I would not be at all surprised if the current slide in year on year price gains is behind the curve. Spreading discounting suggests as much. From the Investing in Chinese Stocks blog:
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Back in 2011, some developers started giving away vacations and other freebies to people who bought properties. This sales tactic is back again.
The article goes on to list some new selling methods.
#1: Free High End Gifts (While Very Limited Supplies Last)
“Easy one brush, coach hand,” Yesterday, there was a message from Guangzhou Panyu Area with real estate reporter on micro letter. The message said that the participants only need to provide valid proof of assets of $ 300,000, including bank deposits, stocks, within the specified time to confirm the real estate sales department can acquire coach bags.
Reporter then called the telephone sales department, a sales staff confirmed the news. “We are open real estate units in the new issue next week, so this activity is mainly to attract popular.” And a reporter asked the bag, it admits:. “Yet to see a specific style, only knew the value of several thousand yuan.”
Coincidentally, earlier, another high-end real estate located in Nansha District also launched the “visiting pumping iphone5S” activities. In the quiet of the property market, the trend Kanlou gift “tall on” more and more obvious.
Reminder: high-end gift is “gimmick”
Reporters learned that, in general activities such gifts, “the tall”, are limited only to provide the gift of this “gimmick” to get popularity.
The package sent to coach such as sales staff will respect “the volume of small, probably only a few dozen, even went to the scene does not necessarily guaranteed to get.”Method #2: Naked Houses. Cut prices on homes by doing away with furnishings, hope to make it up later when buyers need to furnish.
Following the Beijing Vanke orange items cheap “naked selling” the market, the property market, “a brother” in Beijing Vanke another new disk prices again lower than expected. According to the Beijing Municipal Construction Committee website news, March 30 to obtain the approval of the pre-sale Vanke park first opened project proposed sale price of 26,500 yuan per square meters to 28,022 yuan, the sales staff than previously given expected to quote from 31,000 to 34,000 yuan per square meter, “straight down” over five thousand dollars, but with the previous Zhuzong Vanke Orange project, originally expected to become a fine decorated rooms rough room.
Vanke has been to develop hardcover room as their characteristics, the report in 2013 showed that the proportion of its current year has reached about 90% fitting room, the basic realization of the goal of full renovation. As for the “naked”, “naked selling”, Vanke has said:. “Self-select for the company based on market conditions” and vice president of Vanke Group Mao Daqing said that due to the Beijing Municipal Construction Committee will conduct the pre-sale price of Forward House guidance, approval limit price, so Vanke abandoned the original scheme introduced refined decoration, air purification systems, as well as schools and other facilities in order to reduce costs.
In Guangzhou, the “naked selling” phenomenon also appeared there as early as the end of last year. Liwan District CITIC sea off the West early priced at 28,000 yuan / m2 with the decoration, which introduced a number of blank disc special units in early December, the price of 24,000 yuan. Today, the new Guangzhou disk or old disk new push volume, the proportion of rough housing has been greatly increased and prices are generally lower than the surrounding hardcover few thousand dollars.Method #3: Low or No Down Payments.
In Guangzhou, the developers of “pad down” approach nearly 20 real estate sales, involving Poly, KWG, praying, Agile, era real estate.
A real estate project department staff said: “We launched the pad down activities will not affect contract time, developers will first advance part of the down payment, buyers repay this part of the funds back to the developer.”
Reporters found that the same in the first-tier cities Beijing, Shanghai, Shenzhen, also appeared universality “mat down” promotion. In Shenzhen Daya Bay Area, developers with a variety of names, “pad down” has also been common. The project is also a residential suburb of Shanghai by the end of March hit “pad down” card, $ in millions around the house, down 80,000 yuan, the rest of the two months to pay.
Reporters learned that the current property market “pad down” approach also varied, some developers to directly advance part of the down payment, some agency or by a financial institution to provide short-term loans to home buyers, and loan fees and interest burden by the developer. However, these methods are to achieve the objective of reducing the barriers to entry so that buyers “sucked off” effect.The article eventually goes on to note the problem with low or no downpayment sales: if the developer is in financial straits, this makes the cash crunch even worse. Developers on the edge of solvency are going to be in deeper trouble if their more liquid competitors can lure away buyers with no down payments.
Why are these firms resorting to price cuts and sales gimmicks? Their sales collapsed in the first quarter:
As of yesterday, has more than 30 housing prices announced sales results for the first quarter, half-year housing prices appear significantly reduced. Among them, the first quarter sales of Poly Real Estate, China Resources Land, Hopson, Golden Group, Yuexiu other large housing prices were down year on year, China Resources Land sales in the first quarter and even down nearly 50%.
Central data show that in March, ten benchmark of housing prices in 40 major cities nationwide to purchase only the amount of 6.293 billion yuan, nearly 19-month low. Where land turnover Beijing, Shanghai, Guangzhou, Shenzhen four first-tier cities remain high. Cumulative land premium history behind the creation of the third quarter of 2013.The article has this table with some big developers’ sales figures for March, Q1, and the change from Q1 2013.
The number of homes sold in the first quarter in tier-one cities – Chinese property market jargon for the major cities of Beijing, Shanghai, Shenzhen and Guangzhou – was more than 40 percent lower than during the same period last year, data released by China Index Academy on April 1 shows.
Transactions in the capital fell the most among the four cities, by 51 percent, followed by Guangzhou (43 percent), Shenzhen (38 percent) and Shanghai (36 percent).
Despite this, home prices in three of the four first-tier cities rose from the previous month. Home prices in Shanghai increased the most, by 0.99 percent. Beijing and Shenzhen also saw prices go up, by 0.93 percent and 0.77 percent respectively. The average price in Guangzhou fell by 0.29 percent.Volume leads price.
If you prefer more official sources then the following chart from Westpac tells the tale:
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
