China's largest property developers have been offering discounts and other incentives to fight shrinking sales and the credit crunch since the end of last year.

Vanke Co Ltd, the largest developer on the mainland by assets, announced an across-the-board discount of over five percent for 10 of its properties in Shanghai on Lantern Festival (February 21) that traditionally marks the end of the lunar New Year celebrations. It is the first time the company offered such a large discount in the city.

Vanke is offering even better terms for cash buyers. A sales clerk at one of the company's offices said those paying the full amount in one go will get as much as eight percent discount. Those who can cough up half of the price as down payment will get a six percent discount, she said.

In Beijing, two of Vanke's projects were offering five percent to seven percent discounts on one-off payments during Spring Festival.

The unprecedented festival discounts seemed to work. Vanke raked in 257 million yuan on the lunar New Year's Day, compared with the company's 70 percent dive in sales from December 2007 to 1.85 billion yuan in January, according to Vanke.

More importantly, industry insiders said, such a strong promotional offer by a major developer in the city indicates the market will continue to be bleak in the months to come.

Besides, the success of Vanke's promotion is expected to prompt other developers to follow suit, experts said.

Chen Sheng, director of China Real Estate Index System, said many other real estate developers may follow Vanke's example by offering more discounts.

Sure enough, Shanghai-based Jing Rui Properties (Group) Co Ltd has also lowered its prices by offering a three percent discount for group purchases and a two percent discount for those recommended by previous buyers.

Hopson Development, a Hong Kong-listed real estate firm, picked out several apartments for sales promotion in Beijing, cutting down prices from 30,000 yuan per sq m to 22,500 yuan per sq m.

A project developed by Beijing-based Huayuan Real Estate is offering an over seven percent discount for those buying small apartments.

Coastal Greenland group, also a Hong Kong developer, reduced its prices for new projects in Beijing as early as December, lowering them by around 400 yuan per sq m from the average of 17,000 yuan per sq m in the area.

Because of an uncertain economic outlook this year, including a possible recession in the US, a likely slower growth rate for the Chinese economy, rising inflation and tighter monetary policy, a number of large developers are trying to sell quickly and then take over other projects and smaller developers when the market dives, industry analysts said.

Some of them, however, are eager to sell off their projects to jazz up annual reports.

"Sales of high-end projects will face a big challenge this year as most buyers are investment-oriented," said Zhang Lei, a marketing professional with a developer that has several high-end projects going in Beijing.

But according to Pan Shiyi, chairman of SOHO China, property projects with good locations are likely to continue to be popular while prices of low-end properties are most likely to be dragged down with the entry of more affordable housing.

Luo Xiaohua, general manager of Jing Rui Properties, said: "We won't clearly see where housing prices are heading this year until April, after a clearer real estate policy will be announced in the annual sessions of the National People's Congress and the Chinese People's Political Consultative Conference."

But land prices in Shanghai dropped sharply recently. Tishman Speyer Properties acquired a plot of 267,481 sq m in New Jiangwan Town at a starting price of 7,500 yuan per sq m in January, with no competition. Any plot in the same area would command 12,500 yuan per sq m last June and 20,000 yuan in November.

"This indicates sliding housing prices in one to two years," said Luo.

Because of a weakened market, small and medium-sized property developers are the most nervous as they are faced with more financing pressure compared with listed companies, with commercial banks taking tighter measures to rein in credit.

(China Daily February 28, 2008)