Amidst China’s economic downturn and wave of defaults within its cornerstone real estate industry, concerning signs are emerging, such as sales centers involving unexpected partnerships and incentivized queues outside of sales offices.
On the Hong Kong Stock Exchange, Shanghai-based property developer Shimao Group recently announced on April 8 that China Construction Bank had filed a liquidation petition against the company, entailing a substantial financial obligation of $202 million. This announcement led to a historic low in Shimao’s stock price, plummeting over 14 percent to just HK$0.39 (US$0.05), marking a 40 percent decline for the year.
In January of this year, a Hong Kong court ordered the liquidation of Evergrande Group; at the end of March, another real estate giant, Country Garden, was also ordered by its board to be liquidated, suspending its listing in Hong Kong. Other real estate giants, such as Vanke, are also facing similar crises.
Unconventional Sales Promotions
The idea of shared office space is being viewed as a mutually beneficial tactic to attract customers, with real estate offices sharing office space with coffee shops being one example. Notably, leading realtor Lianjia established a partnership with coffee chain Manner, sharing office space to operate synergistically. The first shared location, recently inaugurated in Shanghai’s Putuo District, features separate areas for both entities, with communal spaces for customers. Lianjia contemplates replicating this model in other regions, aiming for mutually beneficial collaborations with other consumer products.Though the exact motive remains unclear, reports suggest this is a ploy to simulate demand following favorable policy announcements. Earlier, a major favorable policy was implemented in Harbin that allowed new home buyers to enjoy subsidies of 20 percent.
Such tactics, not exclusive to Harbin, are prevalent across the industry, with individuals paid to queue as faux buyers, often receiving additional rewards like food items.
Another emerging sales practice involves the adoption of housing “trade-ins,” exemplified by Zhengzhou’s initiative, which allows homeowners to exchange old properties for new ones.
On April 1, Zhengzhou, the capital of Henan Province, announced a housing “trade-in” plan, presenting two choices: the buyers can sell their old houses to the city development group or the market. The plan aims to complete 5,000 transactions of second-hand houses for trade-ins within the year.
Here’s how it works for choice one: the person seeking a new property makes their choice and signs an intent to purchase as their trade-in property is inspected. State-owned enterprises that acquire the trade-in property negotiate with the buyers and apply for loans. If successful, the funds from the sale of the trade-in are transferred to a third-party escrow account for the purchase of the new property. This mechanism is activated after the feasibility of a sale is confirmed.
If the person chooses to sell the old property on the market, the “trade-in” mechanism is activated after the successful transaction of the old property.
Over 30 cities have embraced similar measures. Data from March showed a 52 percent year-on-year decrease in new home transactions in those locations, while second-hand home transactions performed well. This is also one of the significant reasons behind the introduction of the “trade-in” policy.
However, industry professionals believe that to boost the market, stimulation shouldn’t only come from the demand side but should also involve structural reforms in supply. The fundamental aspect is to stimulate employment, increase income, and stabilize housing price expectations.
A reporter from mainland China confirmed that the giveaway promotion is real but comes with a time limit. The purchase contract must be signed by April 30 and paid in full.
The president of the Beijing Residential Real Estate Industry Association commented that while this promotion is an exception, it “indirectly reflects the actual situation of the real estate markets in the two places and has reference value for other real estate companies.”
Currently, developers face difficulties in sales and collections and are trying to recoup funds. New home sales in Tongzhou District, Beijing, have been poor, while many sea-view projects in Yantai City have been in high inventory and high vacancy rates in recent years, with sales moving slowly. Thus, the grim real estate market situation has given rise to a bizarre phenomenon of collaboration between the two cities, offering “buy one, get one free.” Though unconventional, this collaboration reflects the challenges developers face in sluggish markets, striving to innovate with the intent of spurring sales.
According to Fang.com data, there are currently 49 building properties for sale in Mouping District, Yantai City, where the Zhaoshang Yiyun Waterfront project is located. In February of this year, the transaction volume of new homes was 3.28 million sets, a decrease of 72.76 percent year-on-year, and the price decreased by 8.22 percent year-on-year. The data indicates that the real estate market in Yantai City has been on a downward trend since 2018.
As this phenomenon has garnered widespread attention from the media and sparked public debate, the company announced on April 8 that the promotion would be shelved.
On the first day of sales, 505 of 512 units were sold, with a total transaction amount of $2.73 billion, averaging $5.56 million per unit. This broke the record for single-day transactions since the emergence of China’s commercial housing market.
Ponzi Schemes Warning
Steven Mosher, president of the Population Research Institute and China expert, recently told The Epoch TV’s “American Thought Leaders” that “China’s real estate industry is currently in a collapsing process.” He attributes this crisis to rampant corruption and over-construction driven by officials seeking personal gain.Mr. Mosher contends that the CCP’s reliance on real estate development led officials at all levels to make money through real estate, resulting in over-construction. Currently, there are between 70 to 80 million vacant apartment buildings. Even if China stops building new houses, it will take a generation to digest this inventory. Mr. Mosher said, “the massive Ponzi scheme dependent on real estate development by the CCP is collapsing in front of us.”
Ponzi schemes border on fraud, wherein profits paid to investors come from funds collected from new investors, when this may be the sole source of revenues. New investors are lured into this scheme, thinking the venture is legitimate when it is but an illusion that is made to appear growth-oriented and sustainable. Problems arise when investors reverse their decisions, demanding a reimbursement that cannot be paid without an unending supply of easily fooled investors.
Mr. Mosher pointed out that in rural China, the CCP’s approach is blatant land acquisition and theft, while in cities, although it’s more concealed, “the ultimate goal is the same: impoverish the people and enrich the CCP.”
The CCP has always boasted that it has lifted the Chinese people out of poverty, but Mr. Mosher believes that it is the Chinese people who have lifted themselves out of poverty.
“The Chinese people are the most hardworking and intelligent nationality on earth. As long as they are given a little opportunity, they will improve the environment around them and raise their own and their families’ living standards,” he said.
