China Jinmao Selling Xiamen Homes for Less Than Land Cost as Market Skids

Demand for homes is slipping in mainland China and state-owned China Jinmao Holdings seems to be finding out how low prices can go as the developer has begun selling homes at a project in Xiamen for less than the price that it paid to acquire the site, according to a local media report.

China Jinmao has been “selling bread for less than the price of flour” in industry terms since mid-October, with the apartments in the Xiang’an Jinmao Yue project now selling for an average of RMB 28,000 ($3,575) per square metre, or five percent less than the RMB 29,451 per square metre of built area that the developer had paid when it acquired the site last year.

While the discounts on China Jinmao’s project in the Xiang’an area of Xiamen are dramatic, the drama is based on an increasingly common theme, as the city of 3.5 million people in Fujian province has gone from having some of China’s fastest growing home prices to seeing housing prices drop in two of the past three months, after central authorities began a policy enforcement campaign in the second half of this year.

Selling For 32% Less Than the Planned Price

Jinmao’s current selling price at its suburban project is now 32 percent less than the planned RMB 41,244 per square metre price that the developer had received government permission for before the 71,000 square metre development was launched.

The reality of Jinmao’s RMB 28,000 per square metre Xiamen sales stands in contrast to the optimism that the developer displayed fourteen months ago, when it bid 40.2 percent above the auction minimum to acquire the 25,436 square metre waterfront site for RMB 2.09 billion in September 2017.

Promotions for the development between Binhai Dong Avenue and Xiang’an Bei Road in southwestern Xiang’an district, have played up its sea views overlooking Xiamen Island and the city’s harbour.

Hot Market Turns Cold

Known for its beaches and its proximity to Taiwan and the Philippines, Xiamen had been a star performer in China’s housing markets as recently as 2016, when average home prices in the city of 3.5 million people rose more than 45 percent during the 12 month period. Since 2007, Xiamen has seen the highest increase in prices among China’s major cities, with prices having surged by nine times from RMB 5,000 per square metre at the beginning of 2007 to RMB 45,000 per square metre in May of this year.

However, when China’s central government implemented a fresh crackdown on housing speculators starting from July, Xiamen was one of the first 30 cities targeted for inspections and stricter enforcement.

The regulatory shift has caused timing issues for developers in Xiamen, with research by 58 Anjuke Institute showing that, in September, the supply of unsold new homes in Xiamen increased by 207 percent to 213,400 square metres.

During that same month, the volume of homes sold in terms of area decreased by 11 percent to 41,800 square metres. The second-hand housing market also experienced a downturn as the number of transactions and the amount of space sold both fell by around 15 percent in September.

By August of this year, figures from China’s National Bureau of Statistics, showed that Xiamen was the only city among 70 urban centres surveyed to show housing prices dropping, with average prices falling nine percent that month. While rates stayed steady in September, in October Xiamen was one of four mainland cities to show falling prices in the Bureau’s monthly survey.

Suffering in the Suburbs

The resulting market pain has been felt most acutely in the suburban districts of the southeastern China city, which are now home to a number of underperforming projects by some of the country’s largest developers.

China Vanke’s Bailujun project, which is located northeast of the city centre in suburban Xiang’an district, became the target of consumer complaints in September after the developer cut prices for its villas in the development by 44 percent to an average of RMB 2.8 million.

According to real estate website Fang.com, China Evergrande has followed a similar strategy at its Dijing project, which is 30 minutes from the city centre in Jimei district, slicing prices by 11 percent from RMB 36,000 per square metre when sales started in December 2017 to RMB 32,000 per square metre this month.

Sunac China Holdings’ Datong Fu project, located in the suburbs of Tong’an District in the north part of the city, has been the most aggressive in cutting prices, slicing its asking rates by 50 percent from RMB 50,000 per square metre to RMB 25,000 per square metre between August and November of this year.

At least ten developers of suburban projects in Xiamen are now said to be cutting prices as the real estate market in the city, and in the rest of China, heads into winter.