Property developers in some regions of China are offering discounts to buyers in an effort to keep the market moving and although it may be far too soon to interpret this as the beginning of a slowdown in the property market, it does look as if things are becoming less positive.
Recent government measures to cool the market have resulted in both property developers and buyers adopting a wait-and-see attitude. While developers are still hopeful that the population will still continue buying, many buyers are choosing to sit on the fence, and are playing a waiting game to see how effective the government cooling measures will be. Some of the major cities such as Shanghai have seen housing sales decline sharply over the first three quarters of this year, and this has prompted several major developers such as China Overseas Land & Investment and Greenland Group to begin offering huge discounts of up to 40% on certain properties. Shanghai may be just the tip of the iceberg, as other cities are also seeing new properties being sold at a discount.
There is a finite amount of time that some property developers are able to hang onto property that is failing to sell well, especially as many are under pressure due to increased interest rates, and simply have to increase their cash flow in the face of shrinking profits and negative cash flow. While property developers are affected by increased interest rates, so are first-time buyers, as banks have recently increased first-time buyer mortgage rates to levels above the benchmark interest rate in an effort to improve their cash deposits, further decreasing the number of potential buyers.
Although on the face of it this news doesn’t sound particularly great, many analysts are reluctant to predict a widespread price decline for Chinese real estate, and some feel the current situation may be purely temporary, and that these discounts are simply down to the need for more funding before the end of the year. Moody’s is also maintaining a relatively positive outlook on property developers in China, and of course it also depends on whether the Chinese government will continue with its cooling measures.