Guangzhou has permitted developers to slash sale prices of homes by as much as 20%, the first among China’s four top-tier cities to be allowed such dramatic discounting, as tepid demand plagues even the country’s economically most vibrant cities.
Over 200 cities, mostly small and mid-sized cities, have taken steps to boost fragile demand this year, including subsidies, smaller down payments, cuts in mortgage interest rates, and allowing bigger mortgages.
But the four tier-one cities- Beijing, Shanghai, Shenzhen, and Guangzhou-had resisted major policy changes that could sharply reduce the value of their residential real estate, even as home buyers persistently stayed away amid a bear market.
Guangzhou is a city of nearly 19 mn people, widened developer’s permissible discounting in home sale prices to a maximum of 20% from 6%. Among the tier-one cities, average home prices in Guangzhou were the weakest in August at 25,000 ($ 3,580) per sq mt versus Shenzhan’s 55,000 yuan. In the first half of this year, only 39, 618 new homes were sold in Guangzhou representing a 35% slide from a year earlier. Guangzhou was relatively strict on price setting previously.
The adjustment on the price limit policy highlights the change in policy focus that on top of credit policies, administrative policies are also further relaxing. It is an important example of one city policy. Recent data showed China’s property sales to decline, with the sector in crisis.
A credit crunch since last year triggered by tighter debt cap rules has pushed some major developers into defaulting on bond payments while some buyers have threatened to stop paying mortgages for unfinished projects that were pre-sold. The sector needs up to 800 bn yun to ensure distressed developers can finish pre-sold homes. In a downside scenario, that number could rise from 1.8 trillion yuan to 2 trillion yuan.
