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(Kitco News) One Chinese property developer is using gold's appeal to attract new homebuyers, offering bullion in exchange for flats to boost home sales, The Guardian and local media reported.
Huafa Tianfu, a developer from the eastern Chinese city of Hangzhou, has been advertising free gold of up to 1 kilogram if buyers purchase its flats.
Local media cited an ad campaign promising 700g of gold for an 89-sq-meter flat and just over 1kg for a 100-sq-meter apartment.
This is a strong incentive given that this type of property costs between 2.2 million yuan (USD 308,000) to 2.5 million yuan (USD 350,000). And If the gold offered were 24 carats, the one-kilogram bar would cost around 450,000 yuan (USD $63,000).
A report from Qianjiang Evening News said that Huafa Tianfu had already paid customers $1.4 million worth of gold. The promo has now been suspended due to fluctuating gold prices.
There were also several reports that customers were still waiting for their gold after buying a flat from the developer in February. Local media cited a sales representative for the firm stating that gold bars were hard to get due to volatile gold prices.
Promo deals are common in China's property market. Another property developer from the same city has offered free mobile phones, parking spaces, design services, and no management fees for ten years. Property developers sometimes even accept commodities such as wheat as a downpayment for properties.
But even the offer of gold failed to bring success to the struggling Chinese housing market. According to the China Index Academy, the number of homes bought across 50 major Chinese cities fell 17.7% in May.
Several cities in China banned developers from cutting prices, creating a slump in sales amid already low demand.
At the beginning of June, Bloomberg reported that China was considering new measures to help prop up the property market.
"Regulators are considering reducing the down payment in some non-core neighborhoods of major cities, lowering agent commissions on transactions, and further relaxing restrictions for residential purchases under the guidance of the State Council," Bloomberg reported, citing people familiar with the matter.
The weakness in China's real estate market is projected to last for years and even spill across its borders, according to a weekend note by Goldman Sachs.
"We see persistent weaknesses in the property sector, mainly related to lower-tier cities and private developer financing, and believe there appears no quick fix for them," Goldman Sachs economists led by China economist Lisheng Wang said in a weekend note. "We only assume an 'L-shaped' recovery in the property sector in coming years."
