After a double whammy, real estate industry begins to recover

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A joint property housing project under construction in Beijing on April 4 [Photo/Xinhua]

Popular celebrity live-streamer Weiya has launched and sold many products on tech giant Alibaba's e-commerce platform Taobao, from cosmetics to books and even rockets. On April 2, she expanded her range further when she sold real estate online.

In collaboration with a real estate agent in Hangzhou, Zhejiang Province in east China, she sold vouchers to viewers, which would enable them to buy apartments from the agent at a discount if the purchase was made within 30 days. In case they didn't buy anything, they would get their money back.

Online campaigns

With live-streaming marketing in full swing across China, this has also become a creative way of selling houses, especially with people's movements still restricted to prevent a rebound in novel coronavirus infections. Zhang Hongwei, Research Director of Tospur, a real estate research organization, however, pointed out that live-streaming properties for sale is more a method to promote the brand image, the actual transaction is secondary.

Apart from roping in celebrities, real estate agents themselves are also doing online sales, demonstrating their housing resources with virtual reality. Since Evergrande, one of China's biggest real estate companies, announced on February 13 that it was starting an online promotion to sell houses, it has seen a remarkable performance in the first quarter. Its sales hit 147.4 billion yuan ($20.8 billion), increasing 23.2 percent year on year.

At Evergrande's 2019 annual performance meeting held in March, Xu Jiayin, Chairman of the company, said they witnessed the best first quarter results in the company's history, with the sales crossing 600 billion yuan ($84.8 billion).

It shows business is picking up for the sector after a slump in the beginning of the year. Zhang Dawei, chief analyst of Centaline Property, a Hong Kong-based property agency that is one of the biggest in the special administrative region, attributes the decline to two reasons: There was the double impact of the Spring Festival, when most real estate activities were closed for a full month in February, and then came the epidemic, impacting the market greatly in the short term as some cities saw zero transaction.

However, in March, most agencies reopened their sales office, construction has gradually started from south to north, and real estate investment has begun to recover, Zhang added.

According to the National Bureau of Statistics, investment in real estate development declined by 7.7 percent in the first quarter. The total value of commercial buildings sold was over 2 trillion yuan ($287.8 billion), down by 24.7 percent. However, in March the decline narrowed by 11.2 percentage points compared to that in the first two months.

Michael Zhang, director of office leasing at Jones Lang LaSalle (JLL) Beijing, a U.S. commercial real estate agency, said with the huge financial costs of the novel coronavirus epidemic putting further strain on the market, they anticipate both the volume of leasing transactions and rents will see downward pressure in the following quarters. "However, we are still seeing cases of far-sighted tenants making full use of the low-rent opportunities to increase their office areas, upgrade facilities and move their offices to buildings with better property management services," he added.

Michael Wang, the agency's head of capital markets for North China, also remained optimistic. "Domestic investors are still involved in active purchasing activities while foreign investors see it as a hard-won window period for investment," he said.

His optimism was borne out with GIC Private Ltd., the Singapore-based sovereign wealth fund, snapping up electronics multinational LG Group's LG Twin Tower on Chang'an Avenue, one of Beijing's arterial streets close to Tiananmen Square, for 8 billion yuan ($1.13 billion) in February. Lee Kok Sun, Chief Investment Officer of GIC, said in a statement that China is still a major investment market for them, and the move reflected they are still committed to seeking attractive investment opportunities in the country.

A couple orders food at a restaurant in Joy City, a shopping mall in Chaoyang District, Beijing, on March 23. With the epidemic under control in China, restaurants have been reopening gradually with measures in place [Photo/Xinhua]

Housing policy unchanged

On April 20, China's central bank lowered its one-year loan prime rate (LPR), the interest rate for customers with good credit, to 3.85 percent, 20 basis points lower than the previous 4.05 percent. The five-year-plus LPR was reduced to 4.65 percent, 10 basis points lower than the previous 4.75 percent.

"The move will significantly cut the rate of corporate loans, which will give strong support to small and medium-sized companies in the battle against the epidemic," Dong Ximiao, a researcher with the National Institution for Finance and Development, a think tank in Beijing, said.

He said individual housing loan accounts for a majority of the five-year-plus loans. The slight cut reflects that the authorities would not ease real estate control and regard it a short-term stimulator for the economy.

Mi Yang, head of research for JLL North China, echoed him, saying, "Even with the added market pressures from the virus, the authorities are not anticipated to backtrack on the previous commitment that houses are for residence instead of speculation. As such, the tight-policy environment is expected to remain in place for the housing market, which should facilitate a gradual recovery." While he thinks the recently eased financial policies would not release a massive demand, Mi said transactions would rebound with the gradual recovery of social and economic activities in the second half of the year.

Time to reflect

The epidemic has compelled real estate players to rethink their operation plans, like using the Internet more. Feng Lun, founder of Vantone Holdings, a real estate investment company, said in a live-streaming interview on April 10 that the Internet can play a big role in renting and selling. "The Internet will make the process of house purchasing more precise and convenient and enable tenants to build better connections with other tenants and property developers," he said.

Information, such as transaction records, and details on property right disputes can be obtained from the Internet, buyers can compare and evaluate house prices, and transaction and payment becomes more convenient online, he added. However, Feng thinks online house renting instead of house selling will see faster growth.

Also, during the months that people have been staying at home, they have been scrutinizing their living and work environment, with many thinking of upgrading them or making changes. That means more opportunities for the industry.

In addition, the epidemic has made real estate enterprises reflect on making strategic adjustments. Feng suggests they pay more attention to managing their expenses, scale and cash flow, especially the last. The epidemic has reinforced the lesson that cash flow can become a bottleneck for most companies trying to maintain operation in times of adversity.

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