Realtor to stockpile cash
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South China's Guangdong Province-based Evergrande Real Estate Group has launched a nationwide discount policy, becoming the first major developer in the country to cut home prices after the government recently released a series of tightening measures aimed at reining in the runaway property market.
A 15 percent discount was being offered on its property projects across the country as of Wednesday, Evergrande said Thursday in a statement on its website.
The move is designed to pile up liquidity, so the company will have more leeway to respond to new tightening policies in the property market, it said in the statement.
The discount policy was unveiled when the developer reported its sales performance in April. Evergrande's contract sales surged 55.9 percent from a year earlier to 3.74 billion yuan ($547.48 million) in April, and its contract sales area rose 17.8 percent to 578,000 square meters.
Evergrande was the first among its peers to roll out favorable measures for buyers.
The State Council announced April 14 a rise in minimum down payments for second homes from 40 percent to 50 percent, with a mortgage rate at least 1.1 times the benchmark interest rate. Three days later, the cabinet said commercial banks can stop loans for third-home buyers in cities with home prices that are too high. Some local governments also released city-specific measures, with those released by the Beijing municipal government at the end of April being the most harsh. The municipal government stipulated each family can only purchase one new apartment for the moment.
"Evergrande's action is very wise, as it is clear about the current situations, signaling developers have begun to return to their senses," said Yin Bocheng, head of Fudan University's Real Estate Research Center.
Residential and commercial real estate prices in 70 major cities jumped at a record pace of 11.7 percent over 2009 in March, according to the National Bureau of Statistics.
Economists led by Wang Tao at USsecurities said in a note Wednesday that "a slowdown in property construction and some price correction seem inevitable at this moment."
Evergrande's move is likely to initiate a new round of price reductions, and more developers are expected to follow Evergrande's move, said Yang Hongxu, an analyst with the E-house China Research Development Institute based in Shanghai.
Discounts to be offered by developers will be varied, depending on the respective strength of each developer, he said.
Such discounts remain short of expectations for many buyers, as house prices have generally risen more than 50 percent compared to early 2009, with some properties up more than 100 percent.
But both Yin and Yang said home prices aren't likely to decline to the level seen early last year.
Yang expects home prices in tier-one cities including Beijing and Shanghai will see a decrease of around 30 percent after a new round of house price reductions.
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