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Realty firms change tack to beat crisis

By Hu Yuanyuan (China Daily)
Updated: 2009-01-16 07:45

Chinese real estate firms are cutting property prices and reducing the floor area of new development in an effort to tide over the worst property slump in a decade.

Vanke, the country's largest real estate firm, has launched a promotional initiative in Shanghai allowing prospective property buyers to make the initial down payment in two tranches. Prospective buyers can pay 10 percent of the total cost initially and the balance 10 percent before Feb 28.

The step comes close on the heels of Vanke announcing four other measures to stimulate sales, including a 1 percent reduction of the original property price.

"With so much uncertainties in the market, our efforts are to ensure that out business is safe and steady. We will stick to the principle of 'cash is king'," said Xiao Li, vice president, Vanke.

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Cutting prices to promote sales has been a time-tested and workable strategy that developers resorted to in difficult times.

Sino-Ocean Land, a Beijing-based developer, recently decided to sell new buildings at a price of 1,000 yuan lower than the average price in that district. It sold 600 apartments in a day netting 800 million yuan.

"We just want to speed up the flow of operating capital," said Zhang Senlin, Head of Marketing, Sino-Ocean Land. The sales situation this year is expected to be even more worse given that customers are expecting lower salaries and more uncertainties, he said.

"The most important thing for real estate firms now is to survive this round of market corrections, and cutting the price to quicken sales is an effective way to maintain a healthy cash flow," he added.

And this is also what the government wants. It has urged property developers to adjust their prices to promote sales.

Besides cutting property prices, some developers have also reduced the floor space of new development.

According to Zhang Li, president of R & F Property Co Ltd, the company will reduce the floor area of new development by 30 percent to 40 percent, or 1.5 million sq m, this year compared with 2008.

Vanke and Capital Land also have similar plans. Capital Land, for instance, has cut floor area of new development by 60 percent in the second half of last year.

"The slowdown in demand will help prevent a further fall in property prices and also ease the cash flow problems of developers," said Lu Hang, president, Century 21st Real Estate.

While experts are of the view that 2009 is the right time for the industry to revamp itself, developers prefer to remain cautious.

"Vanke has no plans for any large-scale merger or acquisition," said Xiao.