Has the Real Estate Market Changed Its Course? From “Discounts and Promotions” to “Quiet Price Increases” – What’s Really Going On?
Hello everyone, I’m your financial analyst. Recently, you’ve probably seen a lot of news suggesting that the real estate market is starting to recover, and in some areas, prices have even begun to rise. Confused? Just a couple of years ago, developers were offering huge discounts and even providing parking spaces; how come prices are going up now?
Don’t worry. Today, we’ll avoid all the complicated economic jargon and explain in plain language the logic behind this price increase trend, the reasons for it, and what to expect when buying a house in the future.
Summary of the Key Points: The Real Estate Market is Experiencing a “Quiet” Transformation
In simple terms, this article argues that the real estate market is shifting from a period of overall decline to a phase of structural stability, with some of the best properties in key cities starting to see tentative price increases.
However, this is not a widespread, crazy surge in prices like we’ve seen before. Instead, it’s a structural adjustment driven by a combination of policies (especially the “828 New Policy”), rising costs, and changes in market supply and demand.
- Phenomenon: In August, housing prices in first-tier cities stopped falling and began to rise, while the decline in second- and third-tier cities slowed down. Entering the “Golden September” period, many properties in cities like Chengdu, Shanghai, and Guangzhou have either removed discounts or increased prices slightly.
- Reasons:
1. Marketing Tactics: Developers are using the “Golden September and Silver October” sales season to create a sense of urgency by raising prices first and then offering discounts.
2. Rising Costs: New policies have extended the time it takes for real estate companies to secure funds, significantly increasing their financial costs. Without price increases, they would face losses.
3. Decreased Supply: The new regulations have lengthened the cycle from land acquisition to market launch, which will result in fewer new homes available in the coming period.
4. Changing Industry Logic: In the past, sales relied on attractive visuals (renderings, showrooms); now, it’s the quality of the actual houses that matters. Only truly excellent properties have the potential to see price increases.
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A Deeper Look at the Price Increases from Five Dimensions
1. Current Market Situation: It’s Not a Widespread Trend, but Only the “Top Performers” Are Leading the Way
First, let’s clear up a misconception: Not all houses are increasing in price, and not everywhere across the country. In August, new housing prices in first-tier cities rose by 0.1% (Shanghai, Shenzhen, Guangzhou), and while prices in second- and third-tier cities continued to fall, the decline was less severe, indicating that the worst may be over and the market is starting to stabilize.
- Who Is Seeing Price Increases? The increases are mainly in high-quality properties in key locations, often developed by state-owned or central enterprises.
- Who Isn’t Seeing Price Increases? Most private real estate companies are still focused on reducing inventory and maintaining cash flow, while areas with high inventory are still trying to sell as many houses as possible at lower prices.
- How Are Prices Rising? Most of the time, it’s not by directly changing the listed prices; instead, developers are removing discounts. For example, if they used to offer a 2% discount, they might no longer offer it, or they might increase the price by 1%-3% and then offer a discount during the holidays. This is a tentative move to see how the market reacts, not an attempt to make a huge profit.
> In Plain Language: It’s like after a shopping mall’s discount season ends, the popular brands start to return to their regular prices or only offer discounts to VIPs, while less popular brands continue to sell at reduced prices.
2. One of the Reasons for Price Increases: The Hardships Faced by Real Estate Companies
Many buyers think that developers are being unscrupulous when they raise prices, but this time, it’s largely because not raising prices would result in losses.
- Funds Are Locked Up: In the past, developers could collect payments before the houses were even built, allowing for quick capital turnover. However, the “828 New Policy” requires payments only after the project is completed and registered, meaning developers have to hold onto their funds for 2-3 years instead of the previous 6-12 months.
- High Interest Costs: The longer the funds are locked up, the more interest is incurred. These financial costs must be reflected in the housing prices.
- Independent Accounting: Previously, companies could share costs across projects; now, each project must be accounted for separately. If one project loses money, the group can’t cover it indefinitely. Therefore, each project must be profitable on its own.
> In Plain Language: In the past, businesses operated with a “fast-in, fast-out” approach; now, they need to be more cautious due to slower capital turnover, so they have to raise prices to cover the additional costs.
3. Another Reason for Price Increases: A “Vacuum Period” on the Supply Side – Fewer Good Properties Are Available
In addition to rising costs, scarcity also drives prices.
- Lengthened Development Cycles: New regulations have extended the time from land acquisition to market launch.
- Decreased Supply: This means there will be fewer new, high-quality properties available in the market for some time. Especially in popular areas, the existing supply has more leverage to increase prices.
- Improved Expectations: Positive policies (such as the new housing fund policy) have boosted buyer confidence, giving developers the feeling that now is a good time to try higher prices.
> In Plain Language: It’s like a restaurant that used to serve new dishes daily but now has to wait for the kitchen renovations. During this time, the owner can afford to raise the prices of the existing dishes or offer fewer discounts, knowing that new dishes might not be available for a while.
4. Are These Price Increases Really About Real Increases or Just Marketing Tactics?
Buyers should be cautious: A significant portion of these price increases is a marketing strategy. Many developers raise prices and then offer discounts during the peak sales season to create the perception that prices will rise even more if you don’t buy now, thus accelerating sales.
- Testing the Market: Developers are also observing market reactions. If buyers continue to buy, they may raise prices further; if not, they will quickly offer discounts. It’s a dynamic process.
- Localized Phenomenon: Experts point out that this is not a widespread price increase but a structural, localized trend. Don’t let headlines lead you to believe that prices are going up nationwide.
> In Plain Language: It’s similar to the “pre-Halloween price hikes” where merchants first raise prices and then offer discounts to create a sense of urgency and drive sales.
5. The Future of the Real Estate Market: From Buying Concepts to Buying Quality
This is the most important and long-term impact of the changes:
- Moving Away from Finance-Driven Growth to Quality-Driven Growth: Buying a house is no longer about buying into expectations and concepts (such as school districts or developer reputations) but about the quality of the property itself.
- Information Asymmetry Is Diminishing: In the past, buyers relied on renderings and showrooms, which could differ greatly from the actual delivery. Now, you can see and inspect the lobby, gardens, layouts, and services in person. Marketing gimmicks are less effective; quality is the key.
- Focus on Individual Projects: Developers no longer rely on the group’s brand; the quality of each project matters. If a project is poorly executed, even a large developer won’t be able to sell it at a high price.
- What Makes a Good House? Quality now includes reasonable space design, high construction standards, suitability for all ages, sustainability, and good property management. These details determine the property’s value and potential for price increases.
> In Plain Language: Buying a house is like buying a car; you need to evaluate the quality, performance, and practical features. Only truly excellent properties will retain their value and be able to command higher prices.
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Suggestions for Ordinary People
1. Don’t Rush to Buy Based on Price Increases: Don’t panic when you see news of price increases; they are often localized. If you’re not in a dire need to buy, there’s no reason to rush into it.
2. Focus on Core Assets: If you do decide to buy, prioritize properties in key cities, prime locations, developed by state-owned or central enterprises, and of high quality. These areas are more resilient to market downturns and have potential for price increases.
3. Inspect the Properties in Person: Don’t rely solely on sales pitches; visit the properties in person to see the gardens, common areas, and inquire about the services. Seeing things for yourself is the best way to make an informed decision.
4. Be Cautious of Marketing Tactics: Be skeptical of “price increases followed by discounts.” Calculate the total cost and see if the final price is really a good deal.
5. Long-Term Thinking: The real estate market has moved beyond the era of easy profits. In the future, residential value will be the key. Buying a house is about choosing a quality lifestyle.
In Summary: The real estate market is transitioning from a bubble period to a period of value. Price increases are not widespread but reflect the return to quality assets. Understanding this will help you make more rational decisions based on facts rather than market sentiment.