"To buy or not to buy—that is indeed an annoying question." Zhao Gang is a project manager at a large real estate developer. Recently, a project his company is developing in Beijing is about to launch, offering company employees a fairly substantial discount through an internal subscription. Yet he is hesitating over whether to take the plunge...
　　Reporters have learned that recently, internal subscriptions that had once gone quiet are becoming popular again at some large and medium-sized real estate companies. Industry insiders point out that, on the one hand, property market transactions are currently sluggish, and on the other hand, the inventory destocking cycle for real estate companies continues to lengthen. Developers are actively conducting internal subscriptions largely to cope with the pressure of destocking and meeting performance targets. Some real estate companies under greater inventory pressure may roll out more promotional measures in the future.
　　"Internal discounts" no longer attractive
　　The "internal discount" document Zhao Gang received states: employees purchasing for themselves can enjoy a 5% discount on the total price, and clients referred by employees can enjoy a 3% discount on the total price. In addition, internal employees of the real estate company who pay in full in one lump sum can receive a direct cash reduction of 10,000 yuan; those purchasing with a mortgage can receive a direct cash reduction of 6,000 yuan.
　　Faced with such "internal discounts," Zhao Gang is somewhat caught in a dilemma. "If this were a few years ago, everyone would have fought tooth and nail to grab it; everyone knew investing in property was a sure win with no loss. But as for where housing prices are headed now, even within the company there are differences of opinion."
　　Zhao Gang told the China Securities Journal that at a recent internal project presentation, company leaders even promised employees that if their down payment was insufficient, they could pay part of it first and make up the shortfall after year-end bonuses were paid. "But even so, everyone's enthusiasm for buying is not very high."
　　Not only that, the company also encourages employees to recommend "related clients" and offers certain rewards at its discretion. Yet when Zhao Gang told relatives and friends around him about the internal subscription, they did not rush to "get a unit" as they would have in previous years. "That would have been impossible before."
　　The China Securities Journal learned that the project Zhao Gang mentioned is located in Daxing District, Beijing, and is a commercial-residential project. Although it is close to a subway station and its pre-sale price is lower than similar projects nearby, current pre-sale performance is not particularly ideal. When the reporter visited the project's sales office, many people came to inquire, but few actually placed orders and paid.
　　Zhao Gang said that was nothing. "Our project's pre-sale price was not high to begin with, so the internal discount is not large at all. I know that many real estate companies this year are offering quite substantial discounts on internal subscriptions, some even below 10% off." He revealed that a listed real estate company, in order to sprint toward this year's performance targets, opened a newly launched project in Hainan to its own employees, with an internal subscription price more than 10% lower than the market price.
　　A distorted "employee benefit"
　　Zhao Gang said: "Although company leaders did not say it outright, their words were full of worry and helplessness. Because everyone knows it will be quite difficult to achieve the predetermined sales targets this year. Internal subscriptions can at least ease part of the sales pressure."
　　Zhang Dawei, director of the market research department at Centaline Property, said that many real estate companies were overly optimistic about the market at the beginning of the year and set high sales targets. As market pressure emerges, it is expected that after June more and more real estate companies will lower their annual sales targets.
　　Deutsche Bank recently released a report stating that Hopson Development (Hopson · Qilin Society, Hopson · World Village), Beijing Capital Land (Capital Xiruidu Ballet Rain · Yuedu), Powerlong Real Estate, Central China Real Estate, and Sino-Ocean Land (Sino-Ocean Mansion, Sino-Ocean One) and other developers had sales in the first four months of this year that were less than 20% of their annual sales targets. These developers may be unable to complete this year's sales targets.
　　Multiple real estate industry insiders, including Zhao Gang, told the China Securities Journal that because internal subscription prices are significantly lower than market prices and buyers can select units first, internal subscriptions at real estate companies have long been regarded as an extra "employee benefit." 　　"When the market was especially hot, our internal subscription quotas were once very limited; not everyone could buy one." When asked whether it was truly an "employee benefit," Zhao Gang told the reporter a real case: around 2009, a colleague at their company bought five internally subscribed commercial-residential LOFT units in one go. At that time, the internal subscription discount was relatively large, and the bank loan interest rate discount was also relatively large. "That colleague sold all the apartments in just over a year and made a net profit of more than 5 million yuan. Then he quit and went into private equity." 　　Zhao Gang said that the story of "earning 5 million a year" was widely praised in real estate circles at the time, and even employees within their company often talked about it. "However, the property market situation now is very different from then. At the last internal employee presentation, a leader said that if we buy now, we can make at least 50% by next year; when the time comes to flip it, making hundreds of thousands will be easy." He also revealed that because most commercial-residential projects are small-area LOFTs, many colleagues in the past, when subscribing internally, would use their priority right to choose units to buy two adjacent apartments and then combine them to sell together at a high price. "That is why many homes in Beijing's outer suburban counties often have 'one home, two certificates.'" 　　However, now "Zhao Gangs" are hesitating. After all, most of them already have their own housing. They do not know how property market regulation policies will change next, nor exactly how the property tax will be levied. If they enter the market now and step in at a high point in housing prices, how should they face a subsequent decline? 　　The latest report "Urban Household Housing Vacancy Rate and Housing Market Development Trends 2014," released by the China Household Finance Survey and Research Center at Southwestern University of Finance and Economics, shows that urban households' owner-occupied housing is severely oversupplied. The existing housing stock is fully sufficient to meet housing demand, and 40% of the annual supply of existing housing would be enough to meet annual new housing demand. Gan Li, director of the China Household Finance Survey and Research Center, believes that China's urban real estate market currently faces a relatively high homeownership rate, excess stock, a high vacancy rate, and declining rigid housing demand. It can thus be seen that the downward trend in housing prices is set, the turning point is obvious, and the winter of China's housing market is approaching. 　　Zhang Dawei also believes that the current downward trend in housing prices is already very clear. "Compared with the market adjustments in 2008 and 2011 caused by policy suppression, this market adjustment has two differences: first, rising capital prices have led to tighter real estate mortgages and development credit; second, overall housing supply nationwide has bid farewell to absolute shortage, with oversupply appearing in third- and fourth-tier cities." Zhang Dawei said that the domestic real estate market is seeing market depression caused by non-policy factors for the first time, which may make this round of adjustment longer and deeper. In particular, obvious price adjustments may appear in non-core cities and non-core urban areas. 　　Real estate companies compete to cut prices to boost volume
　　Zhao Gang told the reporter that the company attaches great importance to this internal subscription, and a major factor is to reduce inventory pressure. "Beijing has always been the core department contributing profits to the company. If we fail here, future days will be tough." 　　Industry insiders point out that although housing prices are far higher than in other regions, the real estate markets in first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, supported by strong demand, are still generally better than those in second- and third-tier cities. However, as the property market has cooled comprehensively this year, first-tier cities have also been affected one after another, with transaction volumes shrinking severely and inventory beginning to grow rapidly. 　　Industry insiders say internal subscriptions are only the "tip of the iceberg," and real estate companies will increase promotional efforts going forward. It is understood that, unlike the "hidden price cuts" at the beginning of this year, real direct price cuts and discounts are gradually becoming mainstream in the market. National brand developers including Vanke, Evergrande, and Poly have already cut prices in multiple cities and have adopted "price cuts to boost volume" sales strategies. 　　Housing prices in first-tier cities are also loosening under inventory pressure. In May, Vanke's projects in first-tier cities such as Guangzhou and Shanghai began implementing a "price for volume" strategy. It is worth noting that recently, Zhujiang Siji Yuecheng (project information, owner forum), located in Yizhuang, Beijing, launched a "no down payment for the entire project" promotion policy. The promotional effects of these projects remain to be seen.