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  • Jul 23, 2014
  • Updated: 11:10pm
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PROPERTY

Developers regaining taste for land sales

Slowly rising proceeds from recent tenders on the mainland point to local governments releasing more sites in the next few months

PUBLISHED : Monday, 03 September, 2012, 12:00am
UPDATED : Monday, 03 September, 2012, 3:30am

Property developers on the mainland are gradually recovering their appetite for acquiring development sites, but improved prices fetched at recent land tenders have yet to ease the financial woes of local governments that depend on land sales as a major source of their revenue.

Taking advantage of the recovering demand for land, local authorities on the mainland are therefore expected to speed up the release of sites to bolster their coffers over the next few months, analysts says.

Bidding for land at government tenders, especially for sites designated for residential use, started picking up in June and in July the total proceeds from all land sales in 300 mainland cities amounted to 147.49 billion yuan (HK$180.34 billion). That was up 2 per cent on the June total and the highest monthly sum since the beginning of the year, according to the China Index Academy, the research arm of the operator of the mainland's biggest property website, Soufun Holdings.

Sites zoned for residential use generated 97.37 billion yuan, up 23 per cent month-on-month, according to the China Index report released earlier this month.

Revenue from land sales is collected by local governments that sell the land and income from land sales is estimated to contribute as much as 60 per cent of local government revenue. In Hong Kong a similar picture has emerged of a steadily growing appetite for land among local developers. A survey conducted by Hong Kong-based agent Centaline Property Agency showed that land earmarked for the development of up to four million square metres of residential floor area was sold in July, against two million square metres in June.

On the mainland, a total of 274 sites was sold during July, down from 301 sites in the previous month, according to online research service provider China Real Estate Information Corp.

That dip might mark the bottom of the market, which was now poised to recover, according to Lee Wee Liat, head of property research at BNP Paribas Securities (Asia). "With good property sales year-to-date, developers' balance sheets have improved and they are now in a much better position to acquire land," Lee said.

Major developers have already taken up the lead, with China Vanke, the nation's largest publicly listed developer by market value, highlighted as the most aggressive player. China Vanke, which has 47 billion yuan cash on hand, spent 6 billion yuan on land acquisitions in July - up three times on its June acquisitions.

Other major buyers include Longfor Properties, and Poly Real Estate Group, which said it spent 8 billion yuan acquiring 14 sites in the first half of the year.

The increased appetite shown by big developers led to some pace-setting deals. China Vanke last week acquired a site in Dongguan for 407 million yuan, or 5,854 yuan per square metre, and at the end of July China Overseas Property paid 2.97 billion yuan to acquire the former site of Tianjin Normal University in the Balitai district in Tianjin.

Capable of being developed into a project offering a total gross floor area of 228,000 square metres, this equates to 13,026 yuan per square metre, which breaks the record of 10,410 yuan per square metre set in March 2010 for a residential site in the Xinyeli district of Tianjin.

BNP's Lee expects the number of sites released for sale to rise significantly in the second half as local governments bid to increase their land sales revenue. "Local governments are in great need of funding and they will release much more land for sale over the next few months," he said.

The city of Wuhan, in central China, put 36 sites up for sale in one day on August 24, of which 28 were sold and eight withdrawn, and collected total sales revenue of 12.17 billion yuan. Hangzhou sold seven sites in one day on August 27, generating revenues of 5.4 billion yuan, and Beijing announced on August 27 that 11 sites, including nine for residential use, would be offered for sale on September 17.

In the first six months of this year total land sale revenues for 300 mainland cities amounted to 652.98 billion yuan, which was down 38 per cent compared with the first half of last year, according to a July report by China Index Academy, one of the mainland's largest property research institutes.

BNP's Lee said the recovery of demand for land from July onwards remained cautious. "We are still seeing a relatively cautious mode of nibbling bit by bit by developers at the land market rather than massive big acquisitions as the policy outlook is still uncertain."

"The right way to describe the present state of the market would be 'bottoming out'," said Alan Jin, a property analyst at Japanese brokerage house Mizuho Securities. "Developers have only recently become more active and most buyers are market leaders. I sense small developers are not as active as big ones," he said.

Zhang Dawei, a chief market analyst with Centaline Property, echoed these sentiments.

"The land market, particularly in some major cities' sought-after locations, has recovered," Zhang said, but transaction values and activity was still weaker than it was in the same period last year.

Apart from a number of record-breaking deals, many sites were sold at par or slightly higher than the reserved price set by local governments, said Zhang.

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