Housing Discounts Spread to Top Cities as Property Market Slows

China’s residential real estate market continued to slow in March as price increases slackened and the number of sales fell in many cities across the country. The market also reported more cases of developers discounting homes to reduce inventories, even in the traditionally stronger first-tier markets.

According to a story in the Wall Street Journal, housing prices rose an average of 10.04 percent nationwide last month compared to the same period in 2013, down from a rate of increase of 10.79 percent in February and 11.1 percent in January.

Transaction Volumes Dropping Off

Perhaps of greater significance to the market, the number of homes being sold appears to be dropping precipitously, which could put significant pressure on developer cashflows and lead to further discounts on home sales.

According to Century 21, the number of second-hand homes sold in China’s first-tier cities dropped more than 50 percent year-on-year in the first quarter.

The real estate agency indicated that in Beijing, second-hand home sales were off 65 percent and new home sales were down 44 percent during the first three months of this year. The situation in Shanghai was similar, with transactions decreasing 56 percent in the pre-owned home market and 40 percent in the new home market.

Biggest Communities Now Seeing Discounts

The slowdown in demand for housing appears to already be having an impact, even in some of the nation’s biggest cities.

The Journal story reported that China Vanke, the nation’s largest developer by revenue, brought a new development to market near Beijing’s sixth ring road with apartment prices up to RMB 3000 lower than market expectations.

The Global Times also said today that several housing projects in Guangzhou have also been lowering home prices to encourage sales. The reports of discounts in China’s largest cities follow a trend that began in Hangzhou, Changzhou and other second and third-tier cities during February.

First Tier Cities Still Leading Price Increases

Despite the discounts, the situation in China’s first tier cities may actually be among the nation’s most encouraging.

The China Index Academy data showed that Beijing recorded the largest rise in new home prices among the 10 biggest Chinese cities in March, with the average cost increasing 27.13 percent year-on-year to RMB 33,069 per square metre. In Guangzhou rates were up 20.48 percent year-on-year and in Shenzhen housing costs were up 19.02 percent.

Despite being China’s commercial capital, Shanghai had the slowest housing market of any of the country’s first-tier cities in March with the average cost of a new home rising 14.89 percent from a year ago to RMB 32,339 per square metre.