In China’s depressed real-estate market, desperate developers are accepting wheat and garlic as down payments for rural properties to boost sales.
The alternative payment method comes as analysts expect property sales in China to have dropped by 25% from January to June amid China’s zero-Covid strategy, according to Reuters.
China’s citizens are also shying away from real-estate investments, preferring to hoard cash in China’s uncertain economic climate, Bloomberg reported in May.
To boost sales, property developer Central China Real Estate is offering a “swap wheat for house” promotion for homes in Minquan County, Henan Province, CNN reported, referring to a now-removed ad on the company’s official WeChat account. Priced at 2 Chinese yuan ($0.30) for every catty (21 ounces), buyers can pay up to 160,000 yuan ($23,900) of their
with wheat. Prices of houses in the development range from 600,000 yuan ($89,550) to 900,000 yuan ($134,300.)
The promotion will end on July 10 and is targeted at farmers in the region, an agent from Central China Real Estate told Business Standard.
The company is no stranger to launching marketing campaigns targeting farmers. At the start of China’s garlic season in May, the company accepted garlic as payment for another project in Henan Province, per the development’s official Wechat account.
“On the occasion of the new garlic season, the company has made a resolute decision to benefit garlic farmers in Qi County,” the company wrote in the WeChat post. “We are helping farmers with love, and making it easier for them to buy homes,” it added.
Central China Real Estate fell by 40.4% in net profit in 2021, per the firm’s 2021 Annual Investor Relations report. The company did not immediately respond to Insider’s request for comment.
The marketing strategy is not limited to one developer: Two other developers in the eastern Chinese cities of Nanjing and Wuxi were accepting watermelons and peaches from farmers according to state-run media outlet China News Weekly.
Chinese real-estate developer defaults renew fears of contagion to financial markets
The gloom in buyer sentiment is exacerbating stresses for Chinese property firms, with another large real-estate developer defaulting on its debt. On Sunday, Shimao Group announced it missed interest and principal payments on $1 billion of offshore bonds due on the same day.
“Due to the significant changes to the macro environment of the property sector in China since the second half of 2021 and the impact of COVID-19, the Group has experienced a noticeable decline in its contracted sales in recent months,” Shimao wrote in a Hong Kong Stock Exchange filing. Sales by value plunged 72% in the first five months of 2022 when compared to the same period in 2021, contributing to the company’s
crunch, Shimao added.
Other Chinese developers that have also defaulted on their dollar bonds since December 2021 include Evergrande, Kaisa Group, and Sunac China. The liquidity crisis started after Beijing cracked down on excessive borrowing by property developers.
Evergrande was the first major Chinese real-estate developer to default on its debt. This spilled over to other companies as banks tightened sector-wide lending, spurring concerns of a domino effect on China’s financial sector — and the rest of the world.
The Chinese government has stepped in to manage Evergrande’s crisis, but with more Chinese property firms defaulting recently, contagion fears are resurfacing among investors. Dutch bank ING expects more property developer bond defaults in the second half of 2022 and into 2023, Iris Pang, its Greater China chief economist, wrote last week.
That’s even though home sales have improved recently after Beijing pledged in March to support the property market. China’s property sales in May fell 31.8% on-year — an improvement from the 39% plunge in April, according to Reuters calculations using official statistics.
“Although this is a positive move for home sales, it is not positive for property developers that have defaulted on their bonds, whether onshore or offshore, as potential home buyers will stay away from homes sold by those developers to avoid non-completion risk and after-sales property management risk,” Pang wrote.
“With developer debt stress expected to persist, authorities will probably continue to focus on boosting home sales to stabilize conditions by year-end rather than resort to bailing out developers,” wrote analysts from the Eurasia Group, a risk consultancy, in a note on June 24.