Developers seek sales in online auctions

Property companies aim to exploit Internet sites to boost business.

With offers of prices "starting at zero yuan", property developers are hoping to use online auctions to restore customers' confidence at a time when sales of real estate have slowed.

On Wednesday, a group of 20 developers started a campaign to that end on EJU.com, a real estate website. Among them were two real estate tycoons - Pan Shiyi, chairman of Soho China Ltd, and Ren Zhiqiang, chairman of Huayuan Real Estate Co Ltd - and other industry giants such as China Vanke Co Ltd and Longhu Real Estate Development Co Ltd.

Each promised to put five of their properties - all in prominent Chinese cities such as Shanghai, Hangzhou and Wuhan - up for auction online.

Real estate shoppers who use the site can take part in several types of auction: English auctions, in which a property goes to the highest bidder; Dutch auctions, in which the asking price starts at a high point and is then lowered until it is accepted by a participant; and sealed first-price auctions, in which bidders simultaneously submit offers that have been sealed in envelopes and cannot be raised in response to a competitor's bid.

After paying a cash deposit, real estate shoppers can sign up to take part in the auctions.

The events are also open to the 1.5 million real estate agents in China. Those who sell a property in one will secure a 1.5 percent commission from the transaction.

Pan said developers must accept that the auctions may cause some property to go for unusually low prices.

"That would be a stunning way to advertise," he said. "But I don't think that will happen because everyone is eager to look out for himself."

This is not the first time developers in China have turned to the Internet to sell properties. Soho China Ltd tested the water for such sales in early April when it parted with 15 properties for 136 million yuan ($21 million), a 12 million yuan discount from their market price.

"Selling properties online is revolutionary ... it is a result of the continuous improvement in developers' resources," said Chen Zhun, director of the Ministry of Housing and Urban-Rural Development's policy research center.

A survey by the iResearch consultancy group showed that real estate shoppers are becoming more accustomed to buying property online. Of those polled, 82 percent said they would consider buying property online if the conditions were right.

Before deciding if they will buy property with a click of a mouse, potential purchasers most often consider property prices and the credentials of the developers and websites they are thinking about buying from, the survey said.

As for online auctions, many analysts see them as marketing devices that are being used mainly in the hope of stemming the current decline in real estate sales. Some expressed doubts that the tactic will be effective, especially while the property market continues to be strictly regulated.

"The fad for online property sales still aims at speeding up sales and cash flow," Song Huiyong, research director of Centaline Property Shanghai, told xinmin.com, a news website.

Vanke, China's largest property developer by sales, reported that sales in November were 36 percent lower than in the same month a year earlier. That marked the fourth consecutive month of sales declines for the company.

Meanwhile, Credit Suisse Group AG said in a report that real estate sales will not rebound in the Chinese market without a loosening of the regulations governing the property market.

Song said Vanke and other developers can establish their own sales websites, which could become one of their best avenues for sales.

Some observers have called the auctions a means of "giving the right to set prices back to customers".

But Qin Bing, a lawyer specializing in the property market, said developers can easily manipulate the events.

"It's hard to tell real bidders from shills who have been hired by developers", he said. "Pressed by competition, buyers will not necessarily benefit from the auctions."