Potential buyers examine a model of a residential property development at a housing fair in Shanghai. More brand name property developers have started offering discounts on newly opened projects, with some of them more than 20 percent lower than the original prices. [Photo / Bloomberg]

Many companies begin offering discounts as cash flow is squeezed

BEIJING - Property prices in China's key cities have dipped as recent tightening measures begin to bite and as more real estate companies start offering discounts because of a gradual squeeze on cash flow.

Statistics from the country's largest real estate website, SouFun.com, indicate that 121 projects in Beijing began offering discounts - ranging from 20,000 yuan ($3,030) to 200,000 yuan - in February.

A project outside Beijing's Fifth Ring Road, for example, went on sale on March 5, with the price of each square meter 4,000 yuan lower than in a previous phase.

The price decline follows a big drop in real estate sales. According to SouFun, property transactions in the city fell 70.24 percent month-on-month in February, the lowest level since 2009.

Shanghai has also been affected, as the average sales price dropped to 19,216 yuan for each square meter last week, reaching a 32-week low, according to China Real Estate Information Corporation.

More brand name property developers have started offering discounts in newly opened projects, with some of them more than 20 percent lower than the original prices. SouFun's statistics show that 95 projects

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are offering discounts this month.

In January, China launched another round of policies designed to restrain growth in property prices. The measures include a rise in the minimum downpayment for second-home buyers to 60 percent from 50 percent, the imposition of home-purchasing restrictions in more cities and the introduction of property taxes in Shanghai and Chongqing.

Feng Huiming, vice-president of Fantasia Holdings Group, said at a SouFun forum that the government's determination to boost the supply of State-subsidized housing will weigh on the price of middle and low-end housing.

"Because the proportion of economically affordable housing in the market is still limited right now, the impact on low-end housing is not so obvious, but it will definitely grow later on," said Feng.

The country will spend about 1.3 trillion yuan to build 10 million units of State-subsidized housing this year, said Qi Ji, the vice-minister of Housing and Urban-Rural Development .

Due to the increasing difficulty of raising finance domestically, an increasing number of Chinese property developers plan to raise funds overseas.

Since January, Evergrande Real Estate Group Ltd, Country Garden Holdings Co Ltd and Hopsen Development Holdings Ltd have all issued offshore bonds in Hong Kong.

More property developers will jump on the bandwagon in the coming months, an industry source said, adding that the next to join will probably be Longfor Properties Co Ltd.

The company has just received a BB+ long-term corporate credit rating from Standard & Poor's and a Ba2 corporate family rating from Moody's, with both rating agencies awarding the company a "stable" outlook.

Industry analysts said it is a wise move for real estate enterprises to raise money as early as possible to deal with market changes because of the tightening policy. The third quarter may be a hard time for many property developers in terms of cash pressures, they said.

According to the research institute China Index Academy, the number of land parcels entering the market climbed 18.7 percent last month, but transactions dropped 43 percent year-on-year. Meanwhile, the transaction price for residential land parcels also fell 15 percent.