(Economic Observation) Evergrande launched the "first shot" of China's price cuts in the second half of the year
China News Service, Beijing, September 7 (Reporter Pang Wuji) Under the pressure of reducing debt, China's leading real estate company Evergrande launched the "first shot" of lowering prices and selling houses in the second half of the year.
According to the promotion plan confirmed by Evergrande on the evening of the 6th, in the next month, Evergrande’s real estate nationwide will be 30% off.
At the same time, there are some additional discounts, such as up to 12% off at the end of the Qing Dynasty.
At the same time, we will increase our efforts to launch more than 40 new real estates.
The company has set its sales target for September and October at 100 billion yuan (RMB, the same below) in a single month, with a total of 200 billion yuan.
If various discounts can be superimposed, it is estimated that a house with an original price of 1 million yuan can be sold for only 580,000 yuan after multiple discounts.
The "30% off national real estate" is unprecedented for Evergrande for frequent discounts and promotions, and the discounts are not small.
Of course, in the actual implementation process, it is basically impossible to give a 30% discount to all properties in the country.
Now that the real estate market in various places is "one city, one policy", many places are even more restricting the price of new houses, and real estate companies cannot unilaterally lower prices significantly.
In fact, in February, when the epidemic situation was the most severe, Evergrande was also the first real estate company to propose large-scale discounts and promotions, and it quickly returned funds during the epidemic.
Affected by sales promotion and other factors, according to statistics, the average sales price of Evergrande's refined decoration housing in the first eight months of this year fell to 9,132 yuan per square meter.
Under the 30% discount, the average sales price of Evergrande’s "Golden Nine and Silver Ten" may fall to the range of 8,000 yuan to 9,000 yuan per square meter.
After the epidemic, the property market has recovered rapidly, and real estate sales have generally rebounded in recent months.
Why does Evergrande have to vigorously promote sales during the traditional peak season "Golden Nine and Silver Ten"?
The answer is to reduce debt.
From the perspective of sales data, Evergrande recorded sales of 450.6 billion yuan in the first August. If the target of 200 billion yuan is completed in September and October, this means that Evergrande will complete the annual target of 650 billion yuan two months in advance.
What is more important is the payment back behind the sale.
If calculated by Evergrande’s 89.4% return rate in the first half of the year, Evergrande will return about 180 billion yuan during the "Golden Nine and Silver Ten" period, which will greatly promote debt reduction and promote various indicators to meet regulatory requirements.
According to media reports, China’s regulatory authorities previously formed key real estate companies’ fund monitoring and financing management rules, which mainly involved the “three red lines”: the asset-liability ratio of the real estate company after excluding the advance receipts should not be greater than 70%; the net debt ratio of the real estate company should not be greater than 100% ; Real estate companies' "short-term cash debt ratio" is less than 1.
Once real estate companies "step on the line", they cannot increase or need to strictly control the scale of interest-bearing liabilities.
Wang Xiaoqian, an analyst at the Zhuge Housing Data Research Center, pointed out that from the financial data of 2019, Evergrande’s "three red lines" are all stepped on.
Therefore, the main purpose of this price reduction promotion is also to quickly collect payments and reduce debt indicators.
But selling a house at a lower price will definitely cut profits.
Pan Hao, a senior analyst at the Shell Research Institute, pointed out that in the first half of the year, Evergrande also suffered a sharp drop in short-term profits due to discounts and promotions.
The semi-annual report of Evergrande shows that in the first half of the year, Evergrande’s sales went up against the trend while gross profit fell by 13.7% year-on-year.
As the industry leader, Evergrande takes the lead in cutting prices or will drive the entire market to accelerate shipments. Some real estate companies may follow this approach.
Will there be a new wave of price cuts in the property market?
Pan Hao pointed out that from the results of the first half of the year announced by real estate companies, nearly half of the companies that have been announced have failed to meet the target. Sales in the second half of the year are under pressure. Appropriate adjustment of price strategies to increase sales is bound to be adopted by major real estate companies in the second half of the year. This is an important means, but it does not mean that market prices will fall.
From a national perspective, the current supply and demand ends of the new housing market are gradually stabilizing.
On the one hand, the policy level focuses on stability and does not encourage large fluctuations in house prices; on the other hand, when the demand for house purchases is stable, price cuts cannot create demand, and can only consume the market in the short term. When both buyers and sellers become rational, the market The probability of a large-scale price drop is relatively small.
It is worth noting that, as a leading real estate company, Evergrande has low land acquisition costs and large land reserves, which can hedge against the erosion of profits caused by promotion to a certain extent.
But for companies with high land acquisition and financing costs, a price war may trigger a subsequent crisis.
(Finish)