Property developers in Hefei have withdrawn the discounts for new residential properties.

Last Friday, a major piece of news spread in Shenzhen's real estate circle: New residential developers are preparing to form an alliance to raise prices collectively. The alliance in Shenzhen remains nothing more than a verbal agreement, while over a thousand kilometers away in Hefei, such an alliance has already been put into practice.

After the new policy rolled out on August 28, more than 20 real estate projects of all sizes in Hefei announced that they would cancel existing discounts, including Zhonghai Guanlufu, Baichuan Xu Anlanfu, Gaosu Shangheyuan... Most of the moves were tentative, only cutting discounts by 1 or 2 percentage points while retaining the rest of the preferential terms. However, Tianfu Qinglan Yuhua and Yihe Honglu removed all discounts completely, selling properties directly at the government-recorded filing price.

Strictly speaking, this round of moves does not count as a price hike. Hefei's developers are just taking back the previously offered discounts, and the two most aggressive projects have raised their prices all the way to the government-set ceiling, the filing price.

They dare to do this because three favorable factors have converged at the same time.

The first factor is the new policy itself. All land parcels newly transferred after August 28 will prioritize the sale of completed properties. Even for pre-sale projects, developers can only start selling properties after the main structure of the individual building is fully capped. This means no available properties for sale can be supplied from the land parcels auctioned now within the next two to three years.

Existing new residential projects that have already obtained pre-sale permits have become the rare commodities that can be launched on the market immediately during this window period.

The second factor is that Hefei's existing residential inventory is already at a low level. Data from CRIC shows that the inventory digestion cycle of new residential properties in Hefei at the end of August was only 11.6 months. The popular Economic and Technological Development Zone had a digestion cycle of merely 5.5 months, and the Government Affairs District has entered a stage of severe scarcity, with the digestion cycle standing at only 2.4 months.

The third factor is the land price. On the day the new policy was released, Hefei just finished a land auction where all pilot land parcels were sold at premium prices. The parcel on Baxia Road in the Economic and Technological Development Zone was sold at a premium rate of 12.1%, the parcel north of Easyhome in Yaohai District was sold at a premium rate of 22.8%, and the parcel north of Shui'an Shengshi Taoyuan in Feixi County was acquired by Greentown for 595 million yuan, with a premium rate of 35%.

The parcel with the highest premium rate is the Second Affiliated Hospital parcel in the Economic and Technological Development Zone. 12 real estate enterprises participated in the bidding, which lasted for two hours with 471 rounds of quotations. The parcel was finally won by C&D, with a premium rate as high as 43.9%.

This marks a new high of the premium rate for residential land in Hefei in the past two years. As land prices rise, the price anchor for the properties currently on sale also shifts upward. With supply expected to be cut off, existing inventory already low, and land prices continuing to rise, the two projects that raised prices to the filing price are exactly at the intersection of these three trends.

Yihe Honglu was the top-selling project by online signing volume in Hefei in August, selling 81 units in a single month. Located in the New Eastern Central District of Yaohai, it is the plot with the newest properties and the most complete supporting facilities in this area. It sold 90 units on its first launch day, and never saw a slump in sales in several subsequent additional launches.

Tianfu Qinglan Yuhua is located in the Nanyan Lake section of the Economic and Technological Development Zone, with subway stations, parks and shopping malls all within walking distance. It is also adjacent to No.168 Middle School, making it a highly popular project in the zone. Four months after its opening, 70% of its total units have been sold. After the release of the new policy, it launched more than 30 additional small high-rise units urgently, and 25 units were traded within 6 hours. Many clients locked their properties online directly without even visiting the sales office.

The government-recorded filing price is the price ceiling set by the local authority. But there is another unwritten rule above this ceiling. Rumor has it that for the 126-square-meter unit type in Qinglan Yuhua, buyers are required to purchase two additional parking spaces along with the apartment. A real estate agent told me that this condition is applied case by case and not mandatory, but sales consultants are very unlikely to recommend available units to buyers who refuse to buy the parking spaces.

If only these two projects raise their prices, the move can be explained by fundamental market conditions. The problem is that a group of other projects are also following the trend to announce price hikes. Chenggai Yuhu Yunjing is also preparing to cancel its existing discounts. This project is located in a remote area with immature surrounding supporting facilities. It is next to several public rental housing and talent apartment communities, and most of the high-rise units in its own building are occupied by resettled buyers who hold housing resettlement vouchers. Among all the upgraded residential projects in Hefei, Yuhu Yunjing has always been the type of project that rarely attracts competing buyers.

Price hikes backed by solid market fundamentals and those following the trend are two completely different things.

Developers in different cities interpret the same new policy in totally different ways. Developers in Beijing and Shanghai read the policy as a signal of mounting capital pressure, so the subsequent land auctions turned cold, and only a very small number of developers are willing to cancel their discounts. Developers in Hefei, however, see the policy as a chance to obtain independent pricing power.

They are betting that no competing new projects will be launched on the market in the next few months.

But how long this supply gap will last is not decided by developers. A frontline sales staff is not so optimistic: It is only the beginning of this month, no one knows what new policies will be rolled out around the National Day holiday.

The original purpose of the August 28 new policy was to solve problems faced by home buyers: they no longer need to bet on an uncompleted building, nor do they have to start repaying the mortgage right after paying the money and wait for years to get the delivered property.

Less than two weeks after the policy was implemented, home buyers in Hefei were the first to feel the disappearance of property discounts. For all policies formulated to benefit home buyers, the first group that fully understands the policy is always the property sellers.

This article is from the WeChat official account "Yidichan", written by Zhang Ziyi, and published with authorization from 36Kr.