Today, while the European PIIGS countries’ debt crisis continues its destructive and contagious course (and the European Central Bank resists buying Greek government bonds to help relieve the euro area’s spreading fiscal crisis), there was an interesting development in China’s real estate market.
One of the biggest Chinese real estate developers, Evergrande Real Estate Group, started offering a 15 percent discount on prices of its 40 property projects across the country to promote sales.
Evergrande's move to cut prices will have implications on property pricing in at least the 20 cities where the company has projects on sale.
The move seems rather weird to me when only about a month ago, Evergrande stated that its sales jumped 175 percent in the first quarter to 8.53 billion yuan ($1.25 billion) from the same period last year.
Evergrande has also said it raised $600 million five-year (due in 2015) dollar-denominated bonds that pay 13 percent and were, as the company said, to fund its existing and new property projects.
In my opinion, Evergrande will probably become the first domino in China that will trigger a nationwide decline in property prices.
We’ll have to wait and see if the Chinese property markets cycle has finally reached the “suburbs” of its “bust” phase.
The one thing for sure now is that the Chinese authorities’ credit tightening measures seem to have start working.
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