Better deals don’t please all
The idea of defending one’s civil rights in an authoritarian state might sound implausible. But protests related to such causes in mainland China have actually become more common, so much so that the term weiquan, meaning ‘rights defence’, has entered into common parlance. The term is derived from weiwen, which means ‘stability maintenance’ – a policy that tops Beijing’s priorities. But weiquan’s rise has little to do with pushing for political change and more to do with protecting consumer rights.
Over the National Day holiday earlier this month, homeowners in different cities staged weiquan campaigns. One high-profile incident happened in Jiangxi province, where hundreds of angry buyers mobbed the sales centre of Country Garden, China’s largest developer by sales. They threw eggs at the gate, hit the security guards and chanted “Refund! Refund!”
According to Sohu.com, the demonstrators were furious after developers like Country Garden slashed selling prices (some by as much as 30%) for the unsold units in their residential projects. While it is not unusual for developers to offer extra incentives to promote sales during the National Day holiday, existing homeowners were upset to see the value of their recently purchased apartments decline.
Similar protests broke out in cities including Shanghai, Guangzhou, Hangzhou, Hefei and Xiamen, as developers tried to get rid of their inventory by offering unusually steep discounts.
Country Garden has put out a statement calling for homeowners to honour the commercial contracts they have signed, and stressed that it always sets selling prices according to market conditions.
Yet the Guangdong-based developer’s current struggles – reflected by its need to offer special deals across various cities – are viewed as an indicator that the bull run in China’s residential market might be coming to an end. It’s especially telling because the firm is known for its extraordinary ability to turn new developments into cash cows (see WiC416). Since the beginning of the month the share price of the Hong Kong-listed developer has shed over 17% to a 14-month low.
“The [housing] markets for cities across the first four tiers have been cooling in the last two months, and the trend is anything but abating,” reckons Ding Jiangang, a Zhejiang-based real estate analyst.
For instance, only 293 units in new projects were sold in Hangzhou during the week-long National Day holiday, down 70% compared to a year ago, according to China Index Academy, a real estate data company under New York-listed Soufun.com. Beijing and Shenzhen saw their turnovers slump 50% in the same period.
Facing liquidity pressure and a more gloomy outlook, developers have turned more cautious in replenishing their land banks. Auctions for a total of 796 land parcels across the country were called off in the first seven months of this year, Hong Kong-based housing broker Centaline Property calculates. The scrapped bids in tier-one cities more than tripled in the period (the worst amount since 2012), while those in lower-tier cities doubled.
The downturn is another blow to the Chinese economy, given that the property sector constitutes 15% of gross domestic product (or closer to 30% if you take related industries into consideration). It also poses systemic financial risks. Developers’ debts due this year stood at Rmb396 billion ($57 billion), or nearly three times those of 2017, according to the China Academy of Fiscal Science, which expects the total to rise every year till 2021.
Some smaller developers such as Wuzhou International have already defaulted. A cautionary tale, the Jiangsu-based player had short-term debts 22.5 times greater than its cash in hand when it missed Rmb1.4 billion in bond payments this month.
Even some of the biggest developers have turned defensive.
“Our bottom line is to stay alive,” Yu Liang, chairman of Vanke, told an internal meeting in September. He said that the Shenzhen-based company had so far met only half of its 2018 target to recoup Rmb630 billion of cash from unit sales, reports Apple Daily.
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