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Property price war expected

REAL estate developers in Shanghai are expected to engage in a price war as they are under heavy pressure to generate sales due to an influx of residential projects coming into the market this year.

About 165 such projects (excluding those earmarked for relocation uses) totaling some 22.37 million square meters are expected to be ready for sale this year in the city, according to latest statistics released by E-House (China) Holdings Ltd.

By comparison, last year saw a supply of 12.3 million square meters although it was below the previous target of about 18 million square meters.

"Almost all developers in the country are facing a very tough scenario in 2009, and price reduction seems to be the only and the most effective way to boost sales in the current sluggish market,'' said Xue Jianxiong, an analyst at E-House. "And the biggest headache for real estate developers is perhaps how to set prices at the right level to attract home buyers.''

Industry people said for now a discount of 20 percent seems to be quite attractive to attract buyers and shore up the home sales.

For instance, Shanghai Westwood Phase II, in Daning of Zhabei District, became the city's bestselling residential project in January after slashing its price to around 17,000 yuan (US$2,490) per square meter.

The price cut helped its developer, which had originally priced the units at between 20,000 yuan and 22,000 yuan per square meter, sell 250 apartments in January. Similarly, a project in Changning District secured the second spot after a 20-percent discount in price. It sold 167 apartments.

Another project, within about 1 kilometer from Westwood, meanwhile, only sold nine units during the same period after it reduced its price by only about 10 percent.

Most industry experts agreed that a price cut is crucial to shore up the sluggish property market.

"Housing prices will likely drop by 25 percent on average nationally this year due to a slack property market and a global financial crisis,'' economist Li Kaifa told reporters earlier.

In Shanghai, industry people said they expect to see a substantial 30 percent price cut by developers over the coming months.


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