While many of China’s potential homebuyers are waiting for deeper discounts before jumping into the market, the risks of slashing prices became evident recently when disgruntled customers stormed a sales office in the eastern China city of Qingdao earlier this month.
According to local news reports, clients who had purchased homes in the Qingdao Greentown Park project rushed to the developer’s office turning over tables, sales displays and chairs after sales representatives spread the word that units in the company’s Greentown Ideal City project would be offered at a 35 percent discount from the asking price.
The October 13th uprising by customers who assumed that prices would only go up is not the first of its kind in China, and spotlights the dilemma facing developers in a market where homebuyers are not accustomed to seeing prices go down.
China Developer Cuts Prices During Market Slump
At first glance, Greentown’s decision to slash prices on phase 2 of the Ideal City project on October 11th is just what the market demanded. China’s home prices fell for a fifth straight month in September, and the average price nationwide is now estimated to be less than it was at the same time last year.
According to reports in the local media, company sales representatives called potential customers letting them know that a limited number of units in the second phase of the project would be available for 60 to 70 percent off the asking price – bringing rates down as low as RMB 7000 per square metre.
Potential buyers responded rapidly with lines forming outside the sales office. On just the first day of sales, Greentown is said to have been able to sign up more than 300 clients, with each making a deposit of at least RMB 10,000 on their contracts.
Phase I Buyers Attack After Price Cut Announced for Phase II
Unfortunately for Greentown, by the 12th the lines forming outside its sale office were filled with a group of angry customers who had purchased homes in phase one of Ideal City – at a price much higher than what was being offered for phase two of the same project.
By 7:00 am, the unhappy investors had pushed their way into the sales office demanding to know why prices had been reduced.
When they were unable to get a satisfactory answer, the crowd began tipping over tables and destroyed the developer’s scale mockup of the proposed development. One female customer began throwing flower pots and soon the police arrived to calm things down.
“I bought a unit in phase one on October 12th last year because they offered a five percent discount,” explained one customer. The disgruntled homeowner complained that, “Yesterday morning Greentown’s saleperson called my wife offering her a 35 percent discount on a unit in phase two of the same project.”
Lured by a then seemingly attractive price of RMB 12,000 per square metre, the sales promotion for Ideal City phase one in October last year had brought crowds of people chasing what seemed at the time like a bargain price.
Customer were also said to be upset over a lack of progress on the project in the last year, as well as an apparent failure on the part of the developer to build several schools that were promised as part of the scheme.
Protests Not the First of Their Kind
The protest in Qingdao is not the first of its kind, and illustrates the pressures facing developers in the current downturn.
In April this year the SWAT team was called in to protect the sales office of Hangzhou New Century Real Estate in Taizhou, Zhejiang, after the company offered a 30 percent discount on an existing project. As in the Qingdao case, the force storming the office were unhappy existing customers.
In order to prevent similar occurrences, that same month the government of Hangzhou forbade developers from discounting prices without prior approval by the city.
The problematic Qingdao project and its unhappy buyers is not the first trouble for Greentown this year either. In May the company’s original owners, led by Hangzhou tycoon Song Weiping, opted to sell out their shares in the Hong Kong-listed company to fellow developer Sunac under pressure from falling prices in the real estate market.
Greentown Attempts to Resolve Qingdao Impasse
This week, in an effort to resolve the conflict with customers who bought homes in phase one of Ideal city, Greentown’s representatives in Qingdao met with representatives of the disgruntled investors. At the meeting, company representatives assured the buyers that the company would soon begin making progress on the project.
A company spokesperson also claimed that reports of the new discounting strategy were inaccurate and were caused by the actions of a few unauthorised salespeople who did not work directly for the company. The company is now offering to refund deposits of buyers who signed contracts during the October 11th sales promotion.
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