Developers' big dreams for smaller

mainland China cities falling apart

Land buying spree in hope of catching housing boom on mainland spells nightmares for
property companies as oversupply forces price cuts
PUBLISHED : onday! "# arch! "$%#! #:#&am
UPD'(ED : onday! "# arch! "$%#! &:&%am
Sandy Li in )hang*hou and Hang*hou and Langi )hiang

Unsold inventory has led to a price +ars +ith reductions at ,from left- .orth Sea Par/ in
Hang*hou! and in )hang*hou at Star 0iver and 1reat (o+n2 Photos: Sandy Li
Developers! +hich +ent on a land buying spree in smaller mainland cities in recent years!
are seeing some of those investments turn into nightmares2
Underdeveloped second and third3tier cities became a magnet for some of the mainland4s
biggest developers after "$$5! +hen the authorities started imposing austerity measures in
a bid to rein in runa+ay home prices! particularly in first3tier cities +here home3
o+nership +as getting beyond the reach of a gro+ing middle class2
(he developers +ere betting that lo+er land prices and the huge gro+th potential in such
cities could generate attractive returns! but the influ6 of property investment led to
chronic oversupply problems2
's a result! developers have been forced to cut prices! some by more than a third in
)hang*hou! Hang*hou! .an7ing! .ingbo and 8inhuangdao2
(he South China Morning Post recently visited the t+o cities +here the first price cuts
+ere seen this year: )hang*hou in 9iangsu province! and Hang*hou in :he7iang2
(he huge unsold housing inventories in the t+o cities could ta/e "" months to unload!
according to industry observers! compared +ith the normal %" to %& months2
;(he )hang*hou property mar/et is horrible!; said <ang 8uan=iao! a director for
development at )entaline ,)hina-2
<ang said land to be sold in coming years could yield >& million s=uare metres of gross
floor area in )hang*hou 3 +hich has a population of about #2& million 3 enough to build
>&$!$$$ %$$3s=uare3metre flats2
;)hang*hou is a small city +ith limited investor demand!; he said2 ;(he supply +ill
probably be enough for %$ years2;
(o speed up sales! an unprecedented price +ar bro/e out among developers in the city 3
+hich media reports have li/ened to a ghost to+n 3 but many buyers stayed out because
of fears prices could fall further2
'gile Property and Star 0iver too/ the lead by cutting prices at their lu6ury pro7ect! Star
0iver! by as much as ?@ per cent from the previous launch in December to about A!$$$
yuan ,HBC>!A"$- per s=uare metre for bare3shell units2 (he price for furnished units fell
"A per cent to %?!$$$ yuan per s=uare metre2
;(he )hang*hou government immediately ordered 'gile to stop the price3cut promotion
in order to avert a severe price +ar!; <ang said2
Ho+ever! the developers sidestepped the government4s +arning! replacing the ;price
cuts; mentioned in their promotional materials +ith ;huge preferential offers; instead2
Last +ee/! 1reat (o+n 3 by Dong Du ing )heng Property 3 +as offered at an average
@!5$$ yuan per s=uare metre! +ith preferential discounts of up to %!$$$ yuan per s=uare
metre2 (he promotion +as effective! +ith a third of the first batch of ?@$ units sold2
Hang*hou! +hich sa+ its housing inventory 7ump &$ per cent to %"$!$$$ units last year!
faces a similar problem2
;' price fall +ill almost certainly occur in Hang*hou but it4s unli/ely to be big!; said :hu
Ling! a director at )entaline2
Last month! Hang*hou developer Do(hin/ cut prices by %"2" per cent at its .orth Sea
Par/ pro7ect in the city4s outs/irts to %&!>$$ yuan per s=uare metre2
' the nearby )hamps3Elysees development! :he7iang 1uang Hong Property began
offering "$ per cent discounts that too/ prices do+n to %?!>$$ yuan per s=uare metre2
:hu said sales in Hang*hou had stalled as investors from Een*hou and (ai*hou 3 also in
:he7iang province 3 accounted for 7ust %A per cent of transactions! compared +ith a third
before "$%$! +hen Bei7ing introduced rules banning individual buyers ta/ing up more
than t+o flats2
Developers! ho+ever! have played do+n the price cuts in the t+o cities2
Po+erlong 0eal Estate chief e6ecutive Hoi Ea3fong said the media had e6aggerated the
reductions in Hang*hou2
;Ee have pro7ects in Hang*hou too!; Hoi said2 ;It is a mar/et +ith uneven supply2
;(he city is e6panding out+ards2 's a +hole! the stoc/ +ill ta/e about %& months to
clear2 But it differs in different locations2 Ehere there are price cuts! destoc/ing +ill ta/e
"" months2;
This is the first in a series on mainland property trends. Part 2 will appear in
tomorrow's paper