Evergrande slashes property prices by 30 per cent across China for one month, sounding clarion call on discount war

By Pearl Liu pearl.liu@scmp.com

/ https://www.scmp.com/business/china-business/article/3100510/evergrande-sounds-clarion-property-price-war-chinas-biggest?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3100510 |

September 15, 2020 3:00 PM SGT

Join our Telegram channel and follow our Facebook for the latest update.

China Evergrande, the country's biggest home seller, said it would slash 30 per cent off the price of every real estate project nationwide for a month, in an unprecedented step that could kick off a spate of competitive discounts as cash-starved developers boost sales to raise cash in a slowing market.

The Shenzhen-based developer, founded and headed by China's third-richest businessman Hui Ka-yan, kicked off its month-long sales campaign on September 7. It aims to sell 200 billion yuan (US$29 billion) of property during the period, according to an Evergrande official who declined to be identified.

Across-the-board discounts are unusual for an industry that studiously avoids cutting prices for fear of upsetting owners in a nation faced with a dearth of investible options, where fixed assets are considered the safest sanctuary for retaining value. China's developers, among the highest-leveraged borrowers in business, are under tremendous pressure to raise cash to repay the 360 billion yuan in aggregate bond payments due this year, according to data by Beike.

"Evergrande's nationwide campaign signals the price war in China's housing market this year has started," said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute. "Developers are facing huge downward pressure, including piling up unsold homes due to the Covid-19 outbreak, local government's various home sales tightening measures and most importantly central government's recent call for deleveraging. They have an urgent need to sell homes and a price cut is clearly an effective way."

Source: Bloomberg. SCMP Graphics alt=Source: Bloomberg. SCMP Graphics

Founded in 1996 by Hui, also known as Xu Jiayin on the mainland, Evergrande has 13 bonds totalling US$19 billion between 2021 and 2025, including various euro-dollar bonds, and a euro-non dollar instrument, according to Bloomberg's data. The developer also has an HK$8 billion term loan due on November 30 this year.

Its sales goal for the month-long campaign overlaps with China's National Day holiday on October 1, a typical peak season for retail sales and consumption. Evergrande, which sold 450.62 billion yuan of property in the first eight months, is behind schedule to meet its internal sales target of 800 billion yuan this year, as China's consumption and retail sales has been hobbled by a coronavirus pandemic and dimmer outlook for jobs and exports amid a bruising US-China trade war.

Aerial view of Emerald Bay in Tuen Mun, developed by Evergrande Group, as of October 25, 2019. Photo: Winson Wong alt=Aerial view of Emerald Bay in Tuen Mun, developed by Evergrande Group, as of October 25, 2019. Photo: Winson Wong

China's economy shrank 6.8 per cent in the first quarter when the country became the first major nation to enter lockdown to contain the coronavirus outbreak. By the second quarter, growth had rebounded by 3.2 per cent as the disease came under control in China, and factories across the nation began to resume production. Still, most services including cinemas, sports events and entertainment venues remain closed to avoid the relapse of the disease in large crowds.

That has spilled over into slumping consumption, as buyers stayed away from visiting showrooms and viewing show flats. Evergrande's first-half profit fell 56 per cent to 6.54 billion yuan, its third consecutive decline in interim earnings.

The industry's general malaise is raising concerns among government officials, anxious to keep developers' balance sheets in good shape, a message underscored last month by the government's so-called deleveraging red lines.

The framework caps debt-to-asset ratio for developers at 70 per cent, net debt-to-equity at 100 per cent, and short-term borrowings at no more than cash reserves. Failing to meet those "red lines" may result in them being cut off from access to new loans from banks, it said.

Evergrande currently has 817 projects across the country, according to its latest annual report and the company said another 40 new projects will be launched during the discounted period.

The developer's nationwide discounts will exclude its inaugural project in Hong Kong - the Emerald Bay complex in Tuen Mun - which had been saddled with lacklustre sales, as it failed to sustain its flying start since the first sales launch last October. During its most recent weekend sale on June 7, the developer managed to find buyers for five of the 338 flats on offer, its fourth consecutive weekend flop.

An Evergrande official said the month-long discounts only applied to projects on the mainland and excluded Emerald Bay in Hong Kong.

Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

Follow our channels to receive property news updates 24/7 round the clock.

Subscribe to our newsletter