It was inevitable: the Chinese real estate market has reached the frequent-flyer mile stage. Residential property developer China Vanke is to offer discounts matching users’ online spend on Taobao, Alibaba’s ecommerce website, over the past year. The reductions run from $9,000 to $350,000 on 23 projects in 12 cities.
Is this another sign that an overbuilt, overpriced, overleveraged Chinese property sector is wobbling towards collapse? Not necessarily. Vanke is one of China’s most successful high-volume, low-margin residential developers. Even as the overall sector has struggled this year, the company’s contract sales rose nearly one-fifth between January and July. And inventories, at just over 5 per cent, were stable versus the end of 2013. It is not hugely indebted. Vanke does not look squeezed. So why might it engage in such a strategy?
In 2013, China’s internet economy – all internet-related expenditure from etail to infrastructure to broadband bills – as a percentage of GDP was 4.4, according to a report by McKinsey. This proportion has risen one quarter over three years and is larger than in the US, France and Germany.