China says housing prices are stable, but developers are seeing significant declines

Since last summer, most residential real estate developers in China have reported sharp declines in contracted sales. Many have also revealed substantial declines in average selling prices this year, according to a Wall Street Journal analysis of their monthly stock quotes.

Industry Ris Country Garden Holdings Co.

one of China’s most financially strong developers, reported a 14% decline in its average selling price in January and February of the same months in 2021. A medium-sized developer, Logan Group,

said its average selling price has fallen close to 40% year over year in the first two months of 2022.

“The market has yet to show a clear recovery,” said Lin Bo, vice president of research at CRIC, a real estate industry data provider. “Supply, demand and prices are going down,” he added, referring to houses.

Real estate developers in China have been under pressure since the government put sidewalks on their extravagant loans in the summer of 2020. Debt markets. To avoid default, many real estate companies are rushing to sell apartments, which are now one of their biggest sources of cash.

Earlier this month, Soho China,

a developer of mixed-use commercial and residential buildings, said it would sell nine projects in Beijing and Shanghai at a 30% discount and use all proceeds to pay off its debts

In Zhengzhou, the capital of central China’s Henan province, real estate developers have struggled to sell their inventory of homes, while many buyers remain on the sidelines, according to real estate agents and online discussion forums. In the last decade, industrialization and rapid urbanization have transformed Zhengzhou into a mega-city, to which real estate developers have fallen.

“People have lost confidence,” said a real estate agent named Li, who sells apartments in Zhengzhou, referring to home buyers. “On the one hand, they are concerned that the developers will not finish the construction; therefore, she will lose money. On the other hand, they are worried that prices will continue to fall. “

Some developers have offered big discounts to attract buyers. On social media, an apartment from China Vanke Co.

– another more powerful developer – listed at 21,500 yuan per square foot, roughly equivalent to $ 314 per square foot, last July, was recently marketed by agents at about 19% discount. Meanwhile, some local homebuyers complained online last month about similar discounts being offered on a country garden project in Zhengzhou, saying that this had a negative effect on the value of apartments they had recently purchased.

China Vanke did not respond to a request for comment. Country Garden said it “sometimes adjusted the prices of some buildings and some projects” in Zhengzhou, based on the market situation and selling prices of neighboring projects, and called it a normal promotional practice.

Economists and real estate analysts say one of the main reasons the country has seen its official home price data dampen changes is because of its composition. The national index examines real estate prices in 70 of China’s nearly 700 cities, and the largest and richest cities such as Beijing, Shanghai and Shenzhen recorded stronger price increases.

The average selling prices that developers report, however, can vary greatly based on the geographical coverage of the companies, timing of project launches and any discounts they have given buyers, said Franco Leung, head of China Property Corporate Ratings at Moody’s Investors Service.

The government’s home price data also serve as a measure to influence the market, and officials have an interest in balancing the data and keeping it relatively stable, some analysts say. Large price fluctuations in official figures could make people even less inclined to buy housing, which would worsen the conditions on the real estate market.

Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, wrote in a newspaper column last month that the relatively stable home price data in January aimed to ease “the pessimistic mood” of the sector and prevent a downward trend in the New Home. Prices. He also noted that the aim of the government was to maintain land and house price stability and that the gradually declining year-over-year growth in prices helps guide market expectations.

China began compiling its housing price index about two decades ago. The National Statistics Bureau decided on the list of 70 cities in 2005, when many other Chinese cities were still villages. Some analysts believe that it does not reflect the reality of today’s real estate market.

The index has a disproportionate focus on cities, whose housing prices are stronger, analysts say. Those who have seen the largest price increases are often not in the index.

“I believe most of these developers own properties in lower third or fourth cities,” said You Zipei, an analyst with Huaxi Securities.

China’s animal classification system is based on a city’s population, political administration level, and economic growth.

Third- and fourth-tier cities are economically and industrially weak, and have limited housing demand compared to first- and second-tier cities, according to Zhang Bo, director with 58 Anjuke Real Estate Research Institute.

Unsold homes are located in Tier-three and Tier-four cities. According to a recent report by Shanghai E-House Real Estate Research Institute, the number has been growing for almost 40 months.

To bring it up for sale, some developers have given free cars, parking spaces, decorations or household items to home buyers if they are unable to lower their apartment prices, according to Chinese state media.

Logan Group, which has a large presence in southern China, has promoted some of its properties in the region. One in Liuzhou, a third city in Guangxi province, has offered buyers incentives that include discounts of more than 20% on the price of the property, five years worth of management costs and a raffle for home appliances.

In Xinyang, a third city in Henan province, a developer recently announced: “Buy a house and get a luxury car.” Buyers of selected apartments can get cars worth 100,000 yuan, the equivalent of about 16,000 dollars, while some villas get a Mercedes-Benz worth 300,000 yuan.

The government official price index shows the general trend of China’s real estate market with a few months of lag time, said Logan Wright, director of China research at Rhodium Group, a consulting firm, but it fails to reflect the size of price moves .

“This can be for a number of reasons: the projects and housing units that have been tested by the city, the government price controls, hidden price adjustments by developers who use different incentives,” he said.

To make a transaction official, homebuyers must register their properties with the local housing office after signing a contract with a developer or seller. Local statistics bureaus are trying to record prices, according to analysts and real estate agents.

Yang Hongxu, deputy director of real estate services provider E-House China, said price controls had been a major reason why official home price data remained stable while market price changes were greater – in both directions.

Mega cities like Beijing, Shanghai and Shenzhen, where real estate values ​​have risen the most, have set price limits and taxes to fight prices. There are also cities that have set minimum prices in recent months to keep house prices from falling.

Some analysts suspect that local housing agencies are delaying the registration of certain properties, whose prices are very high or very low, in order to keep the official data relatively stable from month to month. “They control prices this way,” Mr. Dir said, with Huaxi Securities in Shanghai.

-Serena Ng contributed to this article.

Sign up Cao Li at li.cao@wsj.com