Some Chinese developers have begun to accept watermelons, wheat, garlic or peaches to give discounts to home buyers in the face of the weak market and the restrictions on price drops imposed by the authorities to prevent them from collapsing.
As reported today by the Hong Kong newspaper South China Morning Post, a construction company in Nanjing (east) offers a discount of 100,000 yuan (about 15,000 dollars or 14,300 euros) if the buyer of a new apartment gives them 5,000 kilos of watermelons, which translates in which the promoter would pay five times more per kilo than the current price in the wholesale market.
The flats sold by this developer, Nanjing Seazen Holdings, went on the market at a price of about 18,800 yuan (2,810 dollars, 2,694 euros) per square meter, that is, between 1.5 and 2.3 million yuan (between 224,000 and 344,000 dollars, between 215,000 and 330,000 euros) per apartment.
In Wuxi (east), another construction company accepts peaches to discount up to 188,888 yuan (28,200 dollars, 27,000 euros), while in the central province of Henan a promoter lowered its prices by up to 160,000 yuan (24,000 dollars, 23,000 euros) in exchange for wheat or garlic, which resulted in 30 flats being sold and the company accumulating up to 430,000 kilos of garlic.
“Since local governments don’t allow them to carry out price cuts at will, developers have to find sneaky ways to make discounts,” said Zhang Dawei, chief analyst at real estate agency Centaline.
At the end of last year, in the face of the crisis of large companies in the sector such as Evergrande -which accumulates a liability of more than 300,000 million dollars-, the distrust of potential buyers translated into a slowdown in the market, to which the promoters responded lowering their prices to try to accelerate their sales in order to recover their investment and pay their creditors.
“In some cities, if price cuts aren’t big enough, buyers won’t buy. In some areas, sales aren’t satisfying, so developers are short on capital,” said Centaline’s CEO, Andy Lee.
According to the South China Morning Post, between January and May the country’s top 100 real estate companies sold 50% less than in the same period in 2021.
However, the authorities of dozens of cities put a “floor” on real estate prices, limiting the discounts that construction companies could make to avoid a “disruption of the normal order” of the real estate market and the sector, whose weight on the national GDP would be around 30%, according to some analysts.
Although the Government seems determined to cool down the real estate bubble -Chinese President Xi Jinping has insisted on numerous occasions that houses “are to be lived in, not to be speculated on”-, it does not want to puncture it abruptly because many families Chinese have relied on this sector to invest their savings, either due to restrictions or lack of confidence in other channels.
In 2018, property giant Country Garden faced protests in several cities, including Shanghai, after announcing discounts of up to 30%, angering buyers who had paid full price.
The position of many promoters was compromised since the end of 2020 after a campaign by the Executive against the aggressive leverage policies (financing growth via debt) on which many real estate companies had relied for years, limiting access to financing for companies more indebted.
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