The real estate market in China has started to move lower, at least so it seems. Certainly, not everyone is happy about it, as some buyers who bought new flats just months ago are now sitting on an unrealised loss as property developers cut prices. As we know, that anger boiled over in the smashing of some developer offices.
According to HKET, one property developer has addressed this with an offer for future home buyers to get a refund of the difference between the prices they paid and the market prices three months before delivery if prices fall. This is not something new, as I remember that Henderson Land (12.HK) did something similar in response to the 1997 Asian Financial Crisis. So this developer sell flats with put options, which will be settled in cash, fantastic.
The cooling real estate market is not only making previous home buyers unhappy. Agencies who are more concerned about transaction volume than prices have been struggling. The China division of Centaline real estate agencies has closed 60 branches (or 15% of all branches) in Shenzhen according to Mingpao and fired about 1,000 employees, and 40 branches in Beijing according cnyes.com. Again, this is not new, Midland closed all of its Shanghai agencies in May, even though they bizarrely opened 11 new branches in Nanshan district of Shenzhen according to Sina News. We wish them the best of luck.
And for those bulls who are hoping that the government will come to rescue by easing policy, we are firstly unsure when that’s going to happen, and secondly whether it is going to be effective. For the first part, the good news is that there are signs that selective easing is happening. Late last week we heard from various sources that China is really easing monetary policy selectively. Mingpao reported on Thursday that some of the banks in Beijing which have practically stopped extending mortgages have miraculously reappeared with loan quotas for mortgages. That’s probably a minor thing and it is not certain at the moment how that is going to save the market, but it was enough to make equities investors excited for a few days. The second part is more crucial: whether there will for sure be demand for credit. If the downward momentum of the property market is established and recognisable, would anyone be very excited about buying a new home with borrowed money? Of course, we don’t know yet whether the tide has turned decisively.
And sometimes the rescue comes from where it is not expected. Greentown (3900.HK) which was rumoured to be pretty much busted, was “rescued” by none other than Jack Ma, the Chairman of Alibaba.com, according to Sina News. It is said that Jack Ma is a good friend of Greentown’s boss, thus he organised some group-buying campaign, and offered interest-free loans to employees.