BEIJING (Reuters) - Chinese banks, property developers and regional governments are intensifying efforts to drag the housing market from its worst slump in two years by allowing people to buy more than one home, slashing prices and launching unorthodox promotions.
The property sector, which accounts for about 15 percent of China’s economy and directly affects some 40 industries from furniture to steel, is of increasing concern to companies and policy makers as it drags on growth.
The most powerful support measure may be yet to come.
Chinese media said on Tuesday that one of China’s top four state banks planned to discount mortgage rates by 30 percent and relax lending rules for those buying a second home.
Whether the flurry of measures can stoke growth in a sector that is crucial to the world’s second largest economy remains to be seen.
Even in central Beijing, one of the few cities left in China where home purchase restrictions are still in place due to record-high prices, the sector is feeling the pinch.
Lu Yanzeng, a property agent, said he had not sold a single home in two months. Business this year “is very so-so, it’s not as good as last year,” he said. “Sales of second-hand homes are slow, but new home sales are brisk.”
China’s property market, where prices surged to all-time highs for five consecutive years, is experiencing its sharpest slowdown in around two years.
Average new home prices fell for a fourth consecutive month in August by 1.1 percent, meaning the market is now close to wiping out gains seen over the last year. Compared to a year ago, sales as measured by floor space were down 12.4 percent.
While the slowdown in a heated market has benefited millions of Chinese, for whom soaring house prices have made home ownership a distant dream, slackening activity has also raised concerns about the health of China’s economy.
It is straining already softening domestic demand and pushing overall fixed-asset investment to lows not seen in nearly 14 years on a cumulative basis between January to August.
Falling home prices are also fuelling credit risks.
State news agency Xinhua said on Sunday that 32 small property developers in the city of Handan in north China have defaulted on loans that were borrowed illegally from an underground market.
That prompted the local government to arrest several executives to stem local investor panic.
No bank or official has so far confirmed media reports that mortgage rates would be lowered, partly out of fear of being criticised for reflating China’s property bubble.
But those in the market were hopeful such a move was imminent, especially since regional governments have already tried to prop up the market by abolishing housing investment limits in 40 of 46 cities.
“The unwinding of property controls by local governments should lift sales, but the effect so far isn’t obvious,” said a senior executive at a mid-sized listed developer in Beijing, who declined to be named.
“Relaxing the rules on home loans would be more effective and practical.”
In the meantime, developers are resorting to off-beat marketing ploys to boost business.
China’s largest residential developer China Vanke has partnered Taobao, China’s version of eBay, to give shoppers who have spent at least 1 yuan on Taobao in the past year a discount of 50,000 yuan (4,968.93 pounds) when they buy a home featured in a promotion.
And discounts go up to 2 million yuan for those who have bought 2 million yuan worth of goods on Taobao, owned by Alibaba Group Holding Ltd.
The promotion, which includes a free taxi ride for those who visit the showroom, has drawn an “especially good response”, Taobao said in a statement this month when Vanke expanded the promotion to cover more housing projects.
The month-long initiative now covers apartments and villas in 40 Vanke projects spread across 14 cities, including the eastern city of Hangzhou, one of the areas worst hit by an oversupply of homes and falling property prices.
With China Poly Real Estate, one of China’s largest developers, buyers can get discounts proportionate to the amount of weight they lose in a few weeks, the Beijing Evening News newspaper said last week.
“Many property developers face big pressure to meet their sales targets this year,” said Zhang Xu, an analyst at property consultant HomeLink, in Beijing. “Some of them are exploring new ways to boost sales.”
Developers started cutting prices in February, but modest reductions failed to turn the market around as buyers held out for bigger discounts.
And as inventories of unsold homes climbed during the traditional peak season for property launches in September and October, analysts said developers, especially those strapped for cash, could offer deeper discounts in the coming months.
As of the end of August, half of the 24 listed developers monitored by HomeLink were more than 50 percent short of meeting their 2014 sales targets, data from HomeLink showed.
For an unnamed developer in Guangxi, a region in southwest China, giving live chickens away for free has proved an effective way of drawing attention to a property launch.
“They’re yours if you can catch them”, Chinese media reports quoted the promotional material as saying.
Pictures online showed smiling retirees grabbing chickens by their claws, with 1,000 live poultry snapped up in 15 minutes.
The reports did not say how many homes were sold.
Additional reporting by Jake Spring; Editing by Mike Collett-White