In the past, property developers in China have tried to jumpstart sales by offering everything from free home appliances to giveaway sedans. But the housing market in parts of the country has slowed to such an extent that the need to make sales is getting desperate: some developers are even accepting wheat as down payments.
Last week an advert from Henan-based developer Central China claimed that rural homebuyers could “swap wheat for a house” at one of its new developments in Shangqiu, a third-tier city in the province. The offer was that homebuyers could use the crop to offset as much as Rmb160,000 ($24,000) of down payments for apartments.
It’s unlikely that the developer thinks it is going to make a killing on rising grain prices because of the war in Ukraine. The priority is to get property sales moving faster again, which is also why the developer is accepting garlic for downpayments too, this time towards purchases at a project in Kaifeng, also in Henan.
According to the advert, the promotion has already been popular, attracting 852 visits from would-be homeowners and 30 sales, involving about 500 tonnes of garlic during the 16 days it was available.
Farmers, speculators and garlic traders have all been involved in the action. “The event officially started yesterday and will end in mid-July. We are merely acting as a middleman, facilitating the exchange between the seller and buyer of the crops. In the end, the downpayments for home purchases still need to be settled with funds,” a sales agent told Cailian news agency.
Property developers around the country are resorting to different marketing gimmicks to draw in homebuyers. For instance, state-owned Poly is offering a 200-pound pig (which it will slaughter, also free of charge) when people buy a house at one of its new projects in Jiangsu.
Even more generous than the developers themselves are some of their local government hosts. For example, the authorities in Yulin, a fourth-tier city in Guangxi, are offering a job to anyone who makes a home purchase. To entice buyers, the local government says it will recommend at least three jobs to every purchaser that’s not employed at the time of purchase of a home in the city. It also promises that salaries will be no worse than the minimum wage in Yulin.
Officials in the city are trying to clear record levels of unsold inventory in the real estate sector. Estimates from CRIC, a provider of real estate information, reckon that it will take the Guangxi city about three years to absorb all of its unsold housing (that is, assuming no new stock hits the market).
But forecasts from some of the local banks are more pessimistic: factoring in future supply of housing on land that has been sold but on which construction has not yet started, it could take up to 10 years for Yulin to be rid of its empty homes.
With the pressure growing, the local government doesn’t want to sit on the sidelines and watch. Economic Observer reports that Yulin city government is now sending out some of its junior officials as door-to-door salespeople to pitch the new homes. According to Li Shupeng, an official in the area previously tasked with matters like flood prevention and collecting payments for rural social endowment, his focus has switched since February to selling homes as his primary responsibility.
Initially, Li was sent out to survey market sentiment among villagers. Later, he was ordered to pitch the province’s favourable housing policies to potential buyers (for instance, first-time homebuyers can enjoy up to Rmb60,000 in subsidies).
At weekends Li is also kept busy arranging shuttle buses to bring visitors to look around new residential blocks. The only thing that marks him out as different to more typical property agents is that he wears a Communist Party badge on his jacket (and, of course, he’s not going to get any commission for successful sales, he added).
“Since the latter part of last year, the implosion of Evergrande and other private enterprises has led to the suspension of a slew of projects around the country. Market sentiment is also very weak, especially in lower-tier cities. There have also been reports that Yulin’s biggest developer Guangxi Zhongding has abandoned unfinished projects and that the company’s offices are largely deserted, which further damaged homebuyers’ confidence in the city. So by asking local cadres to sell houses the government is hoping to boost the confidence in the market and bail out the sector,” Economic Observer concluded.
It’s not only Yulin government officials that have new careers as a sales force. In late May, Guangzhou’s Zengcheng District announced it was collaborating with developers to organise group-buying events and sending out civil servants onto the streets in a bid to drum up interest. “Stabilising the local property market and destocking is the biggest priority,” one of its cadre told the newspaper.
Even in first-tier cities like Guangzhou, interest in homebuying is lacklustre. According to monitoring data provided by the city’s 20 largest property developers, as of the end of May, inventory of unsold homes in Guangdong’s provincial capital had increased by more than 30% year-on-year to a historical high. Assuming no new homes are released into the market, it would take almost 18 months to offload all of the existing inventory, analysts claimed.
Other property developers are struggling to survive a severe liquidity crunch. The impact is spreading to some well-known names, including the conglomerate Fosun. Last week the Financial Times reported that Moody’s, the credit rating agency, was considering downgrading Fosun to junk bond status, in part because of its exposure to the ailing market in real estate.
The agency said that the review of Fosun’s financial strength reflected concerns that risk aversion in the market in general would throttle its “already tight” cash position, while a downturn in the domestic property sector would “also increase credit contagion risk”.
China’s largest developer by sales Country Garden was also downgraded by Moody’s to junk status last week. It saw contracted sales fall by 57% in April compared to a year earlier, with May turnover down by 50% from 2021. Its departure from investment-grade territory could bring higher borrowing costs, as well as forcing some investors to offload the company’s dollar bonds.
Country Garden responded to the news of the downgrade with an early buyback of some of its offshore bonds, however, in a move described by analysts as an effort to show its financial strength, despite a decline of about a third in its shares in Hong Kong this year.
“The fact that local governments and developers are working together to promote the recovery of the housing market only proves that the property industry is facing the worst slump,” says Leju, the property listing platform. “Since the second half of last year, the life of developers hasn’t been easy. Not only do they have to make sure they don’t go under, they must also keep finding prospective buyers to maintain positive cashflow. But then they are also fighting against the [Covid] outbreak, job layoffs and the overall slowdown of the economy… They need policy support to stimulate the market.”
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.