Land sales soar 70pc despite tighter state curbs on market

PUBLISHED : Saturday, 08 January, 2011, 12:00am
UPDATED : Saturday, 08 January, 2011, 12:00am

Land sales rose 70 per cent year on year on the mainland last year despite government measures to rein in the red-hot property market.

Land and Resources Minister Xu Shaoshi yesterday said land sales across the country rose to 2.7 trillion yuan (HK$3.16 trillion), with the top five cities accounting for more than 500 billion yuan.

As land sales remain a major source of income for local governments, indirectly pushing up property prices, Xu said there was a need for land reforms. He did not elaborate.

Alan Chiang Sheung-lai, the head of mainland residential property at consultancy DTZ, said the sharp increase in revenue showed developers were bullish about the market's prospects.

'In spite of the government's move to crack down on speculation, demand from genuine homebuyers remained solid,' Chiang said.

Developers were not showing signs of slowing down their buying spree despite banks tightening lending to property firms, he said. The developers were also encouraged by the boom in home sales.

Beijing topped the list in land sales, raising about 163.6 billion yuan, followed by Shanghai with 147.7 billion yuan, according to China Real Estate Information Centre, a unit of the mainland's largest property website, soufun.

Last month, Beijing sold six prime commercial sites in Chaoyang district for 22.3 billion yuan.

Tianjin notched up sales of 90 billion yuan, while Wuhan raised 68.7 billion yuan and Chengdu raked in 62.8 billion yuan.

The central government began taking measures to cool the property market in April last year amid worries about an asset bubble. They included suspending mortgages for third-home purchases, tightening the limit on new home purchases and promising to speed up trials of a new property tax.

On December 26, the People's Bank of China raised the benchmark interest rate by 25 basis points for the second time in just over two months. Banks also increased their preferential mortgage rates from 70 to 85 per cent of the benchmark rate, effectively raising the rate borrowers have to pay.

Analysts said the risk of property lending remained highest among third-tier regional banks. It was unlikely that the property market would see a crash this year.

'Provincial banks have no transparency as to where their money is going, and the fear is that a lot of it has gone into projects that are not as viable,' said Lorraine Tan, a director of Standard & Poor's equity research.

Analysts said on the whole, the mainland property market was unlikely to face a severe slump.

'The average mortgage is paid back in five years; the average down payment is over 40 per cent. The government is proactively pricking the bubble, before giving it a chance to form,' said Howard Wang, JP Morgan's regional investment manager and head of Greater China.

'China is completely unleveraged in terms of loans as percentage of GDP [gross domestic product] and the average household is extremely unleveraged also.'

Chiang believes the supply of new homes will reach a record this year, which might bring down prices by 5 to 10 per cent.

According to DTZ's projection, the supply of new homes would increase by 32 per cent this year to 50 million square metres in the four major first-tier cities. Supply would grow 64 per cent in Beijing, while Shanghai would see a 37 per cent increase and Guangzhou 11 per cent. In Shenzhen, the supply of new homes would drop 21 per cent.