Socam Development, an affiliate of Shui On Land cut prices by 30 percent at a housing project in central Chengdu last week as the troubled real estate company struggles against slumping sales and falling prices.
According to local media reports, Socam sold new apartments in the project along the north section of the second ring road in central Chengdu’s Jinniu district for as low as RMB 7600 per square metre – out-discounting other developers in the area to boost sales. As recently as December the developer – which belongs to the Shui On Group and is chaired by Shui On founder Vincent Lo – had been selling units in the same project for RMB 10,656 per square metre.
Average home prices in Chengdu slid to RMB 8096 per square metre last month, according to a private survey, a drop of 0.01 percent, and the third straight month of declining prices in the capital of Sichuan province.
The sales promotion, which included discounts on mortgages and a 2.5 percent discount for buying on the opening day of sales, helped Socam to sell off nearly all of the 400 units that it put on sale on September 10th, bringing in an estimated RMB 3 billion in contracted sales for the cash-strapped developer.
Competition Driving Price Cuts in Chengdu
The subsidiary of Vincent Lo’s Shui On Group was able to bring in a reported 1000 buyers to its Chengdu sales office by undercutting neighboring projects on price.
During last week’s mid-autumn festival holiday, nearly 20 residential projects cut prices in Chengdu, including developments by major names such as Shimao, Evergrande and China Resources Land. However, the price of units in Socam’s project was said to be a new low for the area.
Socam’s willingness to offer discounts is driven partly by the realities of supply in Chengdu, where the quantity of new housing being brought onto the market is surging, while demand remains tepid. Last week the amount of new housing introduced into the market rose by 167 percent in the southwestern Chinese city to 926,600 square metres, according to data from E-House.
The rise in supply is part of a nationwide movement to bring properties onto the market, after many developers held back projects during the early part of the year in the hopes that prices might improve in the second half of 2014. Now, despite a third consecutive month of falling home prices nationwide, the amount of new supply release in China’s ten largest cities grew 16 percent last week to 3.18 million square metres, according to E-House.
Shui On Desperate to Improve Balance Sheet

Buyers peer at a nearly sold out list of units in the Chengdu project (Photo courtesy of Tencent Real Estate)
While many developers are facing unattractive conditions in China, the Shui On Group’s situation is particularly dire.
The real estate development company, which grew rapidly after the success of its iconic Xintiandi project, has been struggling with unexpectedly costly and time-consuming site clearing issues as it struggles to relocate existing residents from some large projects in Shanghai. At the same time, underperforming projects in other parts of the country drove the company’s gearing ratio to 64 percent in June.
To improve its balance sheet, and reassure skeptical investors, Shui On Land sold two hotel projects in Shanghai to Great Eagle Holdings – the real estate company founded by Vincent Lo’s father and managed by his older brother – in late August.
The liquidation of the hotel projects was precipitated by a slowdown in Shui On’s contracted sales, which fell 56 percent in the first half of 2014, compared to the same period last year. In an August 26th announcement to the stock exchange, the company said that its profits for the period from January to June were also down by 24 percent compared to the same period in 2013.
After failing to build support for an IPO of its China Xintiandi subsidiary last year, Shui On raised as much as $750 million by selling off approximately 21 percent of the subsidiary to Brookfield in November.
In December, the Shanghai-based developer continued to raise cash by selling projects in Chongqing, Hangzhou, and Shanghai. Those asset sales also helped to pave the way for the restructuring of the troubled Trophy Property Development Fund, which had been set up by a Shui On affiliate to invest in the company’s projects.
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