On previous occasions when China’s property market was in the doldrums, developers offered the prospect of free BMWs to entice people into buying new apartments.
And in a sign that the property market is struggling desperately, they are resorting to unorthodox methods once more as they try to drum up interest.
Last week Sina, a news portal, reported that a property developer in Guangxi was trying to lure homebuyers with free poultry. The marketing stunt offered to give away 1,000 chickens – on a first-come-first-grab basis – to people who showed up at a promotional event for an apartment complex it was trying to sell units in. “A thousand chickens are free to grab. They’re yours if you can catch them,” the promotional material promised.
Thousands of people – mostly retirees – showed up at the event, causing chaos (the crowds were so large that some people lost their shoes, local media reports).
China News Net says that all the chickens were snapped up in 15 minutes. The property development was rather less popular. Most attendees left without even asking about the prices for the new homes.
Poly Real Estate, one of China’s largest developers, is also trying to tempt buyers with an innovative strategy: it is offering sales discounts proportionate to a client’s weight (to qualify for this quirky offer, customers have to agree to diet for a few weeks).
China’s largest residential developer Vanke is also trying to be creative. It has partnered with Alibaba’s Taobao site, and has offered anyone who spends on the e-commerce platform a discount of Rmb10,000 ($1,629) when they buy a home featured in one of its promotions.
However, the marketing ploys seem to have done little to resuscitate the property market. September, which is traditionally peak season for housing purchases, posted negative results. Average new home prices fell 0.9% from August, dropping at a faster rate even than the 0.6% decline witnessed between August and July.
“Although sales volumes in China’s property market are likely to improve in September and October – months that typically have the highest sales in the year – the increase won’t be enough to offset the weak sales so far in 2014,” says analyst Christopher Yip from Standard & Poors.
The slowdown in the property market has already prompted a number of regional governments to ease or cancel their home purchase restriction schemes. Meanwhile, state-owned banks have started giving the market a much-needed boost by relaxing access to credit for some homebuyers. Some of the criteria for loans to first-time home buyers is being eased, while existing mortgage holders may also be eligible for the more attractive loan rates that first-home buyers are offered, even when buying a second property, reports 21CN Business Herald.
But looser credit shows little sign of reviving the sector so far, says the Xi’an Evening News, as potential buyers are cautious about getting into the market when home prices seem to be on a steadily downward trend.
“The easing of home purchase curbs will not boost house sales significantly, with only Hohhot posting an obvious market rebound and a few cities including Wenzhou, Hangzhou and Chengdu seeing short-term surges in house transactions,” agrees property brokerage Centaline.
To prepare for what could be a long winter, many developers are tapping the equity market for cash. In late September, Guangzhou-based Agile announced a rights issue, joining Country Garden and Yuexiu Property in asking shareholders for new funds. Agile has a net debt-to-equity ratio of 99%, compared with the average of 61% among Chinese developers.
For smaller developers, the situation is tougher still. One firm on the brink of bankruptcy is Golden Century, a real estate player in Handan, a third-tier city in Hebei province. Its chief executive Shi Yubao has vanished. But the problem at Handan is deeper than one AWOL developer. Shi is said to have borrowed at least Rmb1 billion from local private lenders, while a total of 32 other property firms in Handan were found to have raised Rmb9.3 billion from illegal fundraising or high-return deposits, according to Xinhua.
The local police have detained 94 people and are pursuing another 43 in a crackdown on such activities – with the sweep also netting small-loan companies and rural cooperatives.
One result is that construction has halted at dozens of projects in Handan and most of the city’s residents are now afraid to purchase a home. They worry that developers could default on their shady loans or simply run away with homebuyers’ deposits. Accordingly, new home sales in Handan plunged 32% between January and June, says SouFun (a mere 903 units sold in the entire six months). Unsold apartment space also jumped 17% to 1.4 million square metres (15 million square feet), according to the local statistics bureau.
Golden Century is one of the more visible examples of the challenging environment. “More small property developers will face default risk in the fourth quarter, as financial institutions become increasingly cautious in lending to them,” says Zhang Hongwei, research director at Shanghai-based property consultancy ToSpur.
“We will also see large developers grabbing more market share through acquisition of smaller developers.”
If the real estate business sounds grim, the furniture industry is on life support. Already, some of largest furniture makers are calling it quits, because its fortunes are so closely linked to the ailing property sector, reckons Time Weekly.
Housen, one of the biggest furniture manufacturers in Shenzhen, has just closed down, for instance, and two other furniture firms have stopped production since early September. Previously, FZD, another large furniture maker from Shenzhen, also shuttered its production line. The company reportedly owed its workers over Rmb10 million in wages.
“Based on the current economic condition, it’s no wonder that the furniture industry is in trouble, given that it is downstream of the property business,” says Jiang Hongyuan, president of the Zhejiang Province Furniture Association.
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