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Developers offer hefty discounts in strained China homes market

At a property trade fair in Beijing, China
Getty Images
At a property trade fair in Beijing, China

In the latest sign of Chinese developers' desperation to unload inventory into a weak property market, China Vanke Co is offering discounts of up to $325,000 to home buyers who shop on Alibaba's Taobao, an e-commerce platform.

The country's biggest developer will give discounts that match shoppers' spending of up to Rmb 2 million ($325,000) on the eBay-like service. Homes in real estate developments in Beijing, Shanghai,Guangzhou and Chongqing, among other cities, will qualify, according to an advertisement on Taobao's website.

Developers began cutting prices this year but have so far failed to revive flagging volumes. More than 30 cities have also removed purchase restrictions introduced in 2010 to restrain price growth amid public anger over high prices.

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Residential property sales fell 9.4 per cent in floor space terms in the first seven months of the year compared with the same period in 2013, according to government statistics.

Developers are increasingly resorting to creative sales tactics to drum up interest.

An office tower in Henan province offered carwashes by bikini-clad models to people who referred a friend to the building's account on WeChat, the instant messaging service run by Tencent Holdings. A residential developer in Wuhuan offered new iPhone 6s to potential buyers who showed up at the sales office.

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While few would-be home buyers could afford to spend millions of renminbi on Taobao in a single year, Vanke is offering a more modest discount of Rmb 50,000 to those who have spent smaller sums on Taobao over the past year.

"Putting full effort into destocking has become the common choice of most developers. They're still not optimistic about the market situation,"the China Real Estate Index System, a private data provider, said in a commentary last week.

After years of soaring prices and frantic construction, China's real estate sector is showing signs of strain. Prices in 55 of the 70 largest cities fell in June from a month earlier, compared with just 35 cities in May, while unsold inventory reached an all-time high at the end of July.

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The downturn has exposed sharp differences in the financial strength of property developers., with Vanke and Poly Real Estate Group, the second-largest developer by market value, coping relatively well compared to smaller rivals.

Other developers have fared less well. Gemdale, the sixth-largest, reported a 50 percent decline in net profit, even as operating revenue rose 3 per cent, after falling prices hit profit margins. Profit at China Merchants Property, the eighth-largest, declined 30 per cent on flat revenues.

The inventory build-up may get worse before it gets better. Several developers noted in their recent half-year reports that September and November will be a peak period for new housing completions. That will add to the supply overhang and increase pressure on developers to cut prices.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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