Evergrande’s Xu Jiayin appears encouraged by his latest sales incentive
Guangzhou-based developer Evergrande Real Estate has begun offering down payment loans that allow buyers to purchase a home with no cash down, as China’s real estate firms search for incentives to stimulate sales.
The sales promotion program from China’s third-largest developer was reported recently in the South China Morning Post, and is said to allow new home buyers to borrow the cost of the downpayment from Evergrande interest-free. The elimination of downpayment commitments by consumers, if allowed to become widespread, is seen as significantly increasing the threat of mortgage defaults and a collapse in pricing in the country’s housing sector.
By eliminating the need to make a down-payment, Evergrande seems to have added a new element of risk to China’s housing market, where many analysts have brushed off fears of a market crash similar to the one that hit the US in 2008-2009 by contending that buyers in China have made much larger down-payments and are not over-leveraged. In China, new home buyers have long been required to make down-payments of 30 percent or more on new home purchases.
Zero-Downpayment is the Latest Incentive
The zero-down option was pioneered this year by smaller developers in Beijing and other cities as a way to stimulate demand while China struggles with an unprecedented downturn. However, should the practice of eliminating or cutting down-payments rise, the sales incentive could undermine what stability the market has by making it easier for new homebuyers to walk away from their investments in the event of a downturn in prices.
In recent months China’s developers have turned to discounts, price increase guarantees and other increasingly risky tactics to re-inflate demand as buyers continue to lose faith in the inexorable rise of housing prices.
Government statistics released on Friday showed falling home prices have spread to 55 of 70 cities surveyed. According to figures published by the National Bureau of Statistics, average new home prices fell 0.47 percent in June, compared to May.
Evergrande Sales Strong Last Quarter
While Evergrande is only offering the zero-down financing on selected properties, this latest incentive is unusual for a such a large developer coming off a strong recent performance. Just last week the Hong Kong-listed developer announced that it had set a new record for sales revenue in June, reaching RMB 13.1 billion.
Evergrande indicated in an announcement that the company’s contracted sales for the first six months of this year totalled a record RMB 69.32 billion – 60 percent of the company’s target for 2014.
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