Chinese property developers begin price war

A

ASusilovic

All of which is supposedly linked to jitters emanating from this Shanghai Securities News story, which reports (via China Daily):

Chinese developer Evergrande Real Estate Group on Thursday started to offer a 15 percent discount on prices of its 40 property projects across the country to promote sales amid government tightening measures to cool down the red-hot sector, Shanghai Securities News reported. Analysts told the paper that Evergrande might become the first domino that triggers a nationwide decline in property prices.

A 15 per cent discount on current projects is pretty unheard of. According to the original source, properties being offered by China’s top 10 real-estate companies have until now defied any drop in value.

The Evergrande move, though, indicates that developers may no longer feel as comfortable relying on market sentiment as they did before and are hence beginning a price war to gain market advantage.

One reason for the shift is obviously the Chinese government’s well publicised intention to rein in domestic property prices, as fears grow that a bubble could be forming in the market.

The latest details on which come from the China Securities Journal on Thursday. As AFP reported:

BEIJING – CHINA is drawing up a new curb on property developers as part of a host of measures to cool the country’s red-hot property market, the state-controlled China Securities Journal reported on Thursday.

The plan would ban developers from investing revenue from pre-sales of uncompleted property developments in new projects, the journal said, citing an unnamed source close to the Ministry of Housing and Urban-Rural Development.

Developers will be required to deposit the income from such advance sales of uncompleted projects into a special account monitored by the government and will only be able to use the money to pay contractors.

http://ftalphaville.ft.com/blog/2010/05/06/222046/chinese-property-developers-begin-price-war/
 
It is part of the macro adjustment, not a choice made by that company.

The obvious intention is that Chinese government knows that a single day haircut of 15% or more on all real estates will burst the bubble, and the first potential landing zone of 50% drop is acceptable.

Think about that, decisions of this importance can never be allowed unless approved by the government there. =)

Those who bought not too long ago within the top 15% are now wasted. And unlike U.S. there is no lawsuit to file.
 
It is also first time in human history, we have a communism government big enough, with enough reserve capital, and population, going to fight the potential crash of its market based economy.

Unlike western countries, it can do effectively anything it likes. e.g. haircut all real estates prices by 15% - no polls needed, no votes needed

They might pull it off, and they better do because the unintended consequence can be very very damaging across the world.
 
Quote from ralph00:

Stop it w/the reserves already. One of the biggest myths out there is that these Chinese reserves are just sitting there waiting to be spent as the need arises. Yes, the reserves are an asset, but don't forget the liability side of the balance sheet. China will go down just like any other bubble, reserves or not.

Michael Pettis has done a great job of exploding this shibboleth ...

http://mpettis.com/2010/02/never-short-a-country-with-2-trillion-in-reserves/
More...

Asiaprop won't like this post one bit :)
 
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