Real estate developers which attracted newspaper headlines when they acquired land parcels at record prices in an earlier industry frenzy have found themselves in the spotlight again by offering price cuts.
The land parcels bought with record prices during previous years have become a really big burden and headache for the firms which are suffering tighter credit and cash flow due to sluggish home sales over the past nine months, said Johnny Sze, managing director at Shanghai Hanyu Property Consulting Co.
Between January and October, sales of new homes, excluding affordable housing, totaled only 6.22 million square meters in Shanghai, the lowest since 2006, according to Shanghai Deovolente Realty Co data.
A Changzhou, Jiangsu Province-based developer paid the highest average gross floor area price of 13,200 yuan (US$2,078) per square meter for a parcel in Nanxiang, Jiading District in late 2009. The firm slashed the selling price from the previous high of 25,000 yuan per square meter to as low as 18,000 yuan per square meter, but at a loss.
"The developer may only be able to make profit if the apartments are sold for above 24,000 yuan per square meter, so the loss is pretty big," said Sky Xue, an analyst with China Real Estate Information Corporation. "However, the company has certainly no other choice if it wishes to unload its stock in order to replenish its capital."
Less than 4,000 square meters of new apartments at the Nanxiang project - selling at 25,000 yuan per square meter on average - were sold between September and October, versus over 13,000 square meters sold in the first two weeks of this month at an average price of 20,000 yuan per square meter, according to Shanghai Uwin Real Estate Information Services Co.
China State Construction Engineering Corp bought a 114,500-square-meter plot in the city's northeastern New Jiangwan Town, Yangpu District, for 3.72 billion yuan in December 2009, has got a presale nod earlier this month.
The average gross floor area price for the land was 32,484 yuan per square meter, then the highest on record in China's mainland for residential development.
"According to the city's official real estate website, villas at the New Jiangwan Town project are now sold at between 85,000 yuan and 169,000 yuan per square meter," said Zhao Baogeng, a researcher at Deovolente.
Similar projects nearby only cost from 55,000 yuan to 67,000 yuan per square meter, Deovolente said.