In China, property promotions add to price correction concerns

Wed Feb 26, 2014 4:32am EST
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By Clare Jim and Umesh Desai

HONG KONG (Reuters) - Chinese property developers are stepping up the use of sales promotions for some suburban housing projects, an early sign that a slowdown in property prices that spooked investors this week may be spreading.

In the big cities, demand remains robust and the chances of a slump in prices are slim, according to a Reuters poll. But prices are falling in some smaller centers, causing jitters among investors since the property sector drives a significant portion of the world's second-biggest economy.

Developers are offering price promotions like free car park spaces and renovation options that translate into discounts of 5-10 percent even in developments on the edge of the capital, Beijing, according to real estate firm Knight Frank.

"In some areas where sales are not good, developers are offering discounting or more promotions, even in suburban areas an hour away from Beijing city," Thomas Lam, Knight Frank's head of research & consultancy for Greater China, told Reuters.

The comments follow recent reports that developers have cut prices in some smaller cities in eastern China, about an hour from the commercial capital Shanghai, while one bank said it had cut back on some lending to developers.

On Monday, the government released data showing that price increases in the country's biggest cities slowed for the first time in 14 months.

The combination of these comments has sent the Shanghai Property Index down more than 7 percent since Monday, its biggest three-day drop in eight months, as rattled investors eyed the prospect of a possible burst property bubble.

Although the Chinese government, mindful of the social and economic consequences of a property collapse, has a long-declared goal to cool the frothy property market, any sharp fall in prices could cause huge problems.   Continued...

The 75-storey high landmark skyscraper of Shenyang is seen reflected in a glass facade during a smoggy day in Shenyang, Liaoning province, February 25, 2014. REUTERS/Stringer