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Property

China's biggest developer finds salvation with online sales

With help of discounts, Evergrande Group app handles 82% of purchases

Analysts say discounting was most likely a bigger driver of China Evergrande's online sales than convenience.    © Reuters

HONG KONG -- Lockdowns and layoffs do not make for a promising environment for selling homes. But by taking its offerings online, China Evergrande Group, the country's largest developer, managed to increase sales through the first half of 2020.

Revenues for the group rose 17.5% to 266.63 billion yuan ($39.05 billion), with 82% of newly contracted sales taking place via Hengfangtong, a smartphone app the company launched in February at the height of China's COVID-19 outbreak.

"Evergrande was the first to launch sales online and we were in the lead in terms of sales for the first half. And it is all thanks to Hengfangtong," said Chief Executive Officer Xia Haijun at the company's results briefing on Monday. Due to the app, he said, "There will be no problem meeting our sales target of 650 billion yuan this year."

The app enables users to peek around a featured property, virtually enter different rooms and explore common areas such as parking lots, lobbies and hallways.

But some analysts believe the driver of Evergrande's online success was low prices, not high technology.

"I think it was more the marketing and price discounts that helped push the sales up, rather than the online platform, per se," said Phillip Zhong, a senior equity analyst tracking the sector for Morningstar in Hong Kong.

He noted average unit selling prices for Evergande declined about 16% in the half-year from a year earlier. "To me, it was more of a strategic choice that the company decided to be more aggressive in price cutting in order to sell more," he said.

For the country as a whole, new home sales declined 7.6% by area and 2.8% by turnover in the first half, according to the National Bureau of Statistics.

Evergrande has been accelerating sales in an effort to reduce its heavy debt load. Its contracted sales rose 23.8% to 348.84 billion yuan in the six months to June 30 while the gross floor area sold rose 47.5% to 38.63 million sq. meters. Net profit tumbled 45.4% to 14.76 billion yuan.

Despite the company's medium-term plan to pay off half of its debt, total borrowings rose to 835.5 billion yuan as of June from 799.9 billion yuan at year-end 2019.

Other major developers in China have also been promoting online sales.

Country Garden Holdings, Evergrande's biggest rival, now offers online viewing for all projects on sale. In June, it opened a flagship store on Alibaba Group Holding's Tmall shopping platform, offering 100 million yuan of discounts for the first batch of properties, according to media reports.

Last Friday, Chinese newspaper Economic Information Daily reported that the central government will soon tighten rules on major property developers' financing. This would include setting "three red lines" to control their debt: a 70% limit on their debt-to-asset ratio excluding property prepayments, a 100% cap on their net debt-to-equity ratio, and a requirement that cash reserves exceed the level of short-term borrowings.

Asked about the "red lines," Xia on Monday said Evergrande will support all adjustments and regulations from Beijing. "We are very confident that in the near future, the various indicators of the company will meet the requirements of different regulators."

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