Taobao coupons offer little benefit to homebuyers

Discounts on Vanke projects undercut by severe restrictions

Leading property developer China Vanke Co announced on August 25 that it will offer discounts of up to 2 million yuan ($325,000) to homebuyers who shop on Taobao, Alibaba Group's online shopping website.

Vanke is offering discounts until September 30 on homes at 23 of its projects in 12 cities, including Shanghai, Hangzhou and Beijing. The size of the discount will be based on how much the buyer purchased on Taobao from August 1, 2013 to July 31, 2014.

As of 5:00 pm August 26, more than 120,000 people had received discount coupons, including 900 people who had each received coupons worth more than 1 million yuan, a Taobao employee told the Global Times.

People who have not spent 50,000 yuan on Taobao over the period can only qualify for discounts of 50,000 yuan.

As one might imagine, Vanke has put restrictions on the coupons. For example, it has capped discounts at 10,000 to 100,000 yuan for some of the residential properties in the 23 projects, though there is no cap for villas.

The teaming-up of the two titans has received a lot of media attention, so the discounts have been a successful marketing tactic, but it remains to be seen whether they will bring in more homebuyers.

At the very least, the promotion serves as a test for a potentially innovative way to sell real estate. Most Taobao users are young adults, which is the prime demographic for first-time homebuyers. Targeting them can help cultivate a future customer base. Vanke President Yu Liang said in a recent interview that it is difficult to identify potential buyers, so the company needs to seek them out by all available means.

In June, Vanke teamed up with Baidu to use the Web service giant's technology, such as location-based services, to better analyze the needs of its customers. Real estate developers can make good use of Internet firms' customer databases to target particular groups more accurately. This kind of cooperation could become a trend.

Still, there are doubters. Some critics have asserted that the arrangement between Vanke and Taobao has few substantial benefits for consumers.

For example, all of the projects have restrictions on how large of a discount a homebuyer can receive. Vanke has capped the discounts at 10,000 yuan for its projects in Wuhan, Nanchang and Shenyang, according to media reports. That's not much, especially when many other developers are also offering discounted homes in one form or another.

In other words, this promotion appears to be more of a tactic to lower housing prices so Vanke can sell off some of its stock. Indeed, facing the sluggish real estate market, all property developers in China are trying different tactics to boost sales, including price cuts, selling furnished homes and providing extra parking spaces. Selling houses at cut-rate prices can help quickly boost cash flow.

Although more than 30 cities have removed the home purchasing restrictions they enacted in 2010, residential property sales still fell 9.4 percent year-on-year in the first seven months of 2014, according to data from the National Bureau of Statistics.

Property developers are under a lot of pressure. According to Vanke's midyear financial report, the company's revenue declined 1.04 percent year-on-year. Not only are Vanke's sales declining, but other leading property developers such as Gemdale Corp and China Merchants Property Development Co also reported large drops in profits. Gemdale's first-half net profit collapsed by 49 percent year-on-year. China Merchants Property Development Co's net profit fell 30 percent year-on-year over the same period.

Smaller property developers around the country are under even more pressure to sell their large stockpiles to gain cash as soon as possible. It's good for traditional property developers to seek new channels to identify more customers, but the problem is that property developers need to develop more substantial measures to truly attract consumers. Consumers know how to look for a good value, especially when spending a large amount of money on a home.

In this environment, only companies that really understand consumers' needs and offer competitive incentives will flourish.