BEIJING, May 18 (Reuters) - Property developers in China could implement price cuts sooner than expected as sales slow and credit conditions tighten, raising the potential need for a state-imposed price floor, according to a senior executive of Future Land.
China has tightened rules for real estate businesses seeking to raise funds and introducing a flurry of measures aimed at dampening speculative demand and contain the amount of capital flowing into the property market.
That would make smaller developers prone to capital chain ruptures if faced with a liquidity squeeze as lending costs begin to climb.
“We think it is very possible the property market would fare worse in the second half, and next year would be even worse,” Ouyang Jie, vice-president of Shanghai-listed Future Land, told Reuters in Beijing.
“We feel voluntary price cuts may come before we enter the second half. It could be as early as June.”
Even bigger developers with an eye on market consolidation might lower selling prices to squeeze out smaller competitors, Ouyang said.
But such moves are not without risk, he said, warning of a domino effect that could reverse market expectations dramatically and trigger a sharp drop in sales.
“Once one project lowers prices, the sentiment would spread to the entire city. If one city has a sharp price fall, that would infect the entire country,” he said, adding that a similar phenomenon happened in 2014 when a cash-strapped small developer in Hangzhou lowered prices.
Home prices in Beijing and some large Chinese cities softened in April because of the government’s efforts to cool China’s red-hot property market, but average prices nationwide registered their biggest increase in six months, helped by spillover demand for property in smaller cities.
But Ouyang said the boom in smaller cities wouldn’t be sustainable because the government is intent on curbing price growth and supply will increase while demand is unlikely to rise further.
He suggested that the government should consider setting a price floor to counter the risk of sustained downward price momentum.
“Once it starts falling, the government won’t be able to pull it back so easily. In this situation, setting a minimum price would be a good method.”
He added that the company’s new projects in tier-1 and tier-2 cities have been selling quickly, partly helped by caps the government has set in place to contain rapid price rises.
Reporting by Yawen Chen and Ryan Woo; Editing by David Goodman