Mainland cities offer fresh lures to developers

Municipal governments on the mainland are moving to ease the financial burden on companies wishing to bid for development sites, and shore up their own revenues against declining land sales.

Increasing numbers of sites have been withdrawn from auction because of weak bidding, or have failed to reach expected prices as developers slowed acquisitions in response to tighter credit conditions and growing market uncertainty

Mainland media reported last week that the Beijing municipal authorities were planning to cut deposits required before bidding for residential sites to just 20 per cent of the floor price, from 60 per cent.

In addition, the Guangzhou government last Thursday sought to woo Hong Kong developers to bid for 12 plots at a railway station by allowing them to make a 50 per cent deposit on a successful bid within four to six months of securing the site, instead of withon one month.

Yu Kam-hung, senior managing director of valuation and advisory services for Greater China at CB Richard Ellis, said the authorities were keen to maintain land sales to balance increasing expenditure growth.

'The lowering of the initial deposit may increase the interest of developers in bidding for residential sites at government auctions. However, it is the overall sale price that really matters in view of the present market condition,' he said.

Yu said the new measure were likely to have limited effect because it was not deposit requirements that had caused the market downturn, but rather mortgage policies and other cooling measures.

Lee Wee Liat, regional property head at Samsung Securities, said the measures were in line with recent directives from the central government to sell more land to developers to ensure ample supply of residential units going into 2013 and 2014.

While some big developers might benefit from the latest measures, the problem was that most developers were short of cash because of weak sales, Lee said.

'Most developers will not buy land even if the downpayment is lowered. Local governments should consider additional measures to revive transaction volumes if they are serious about selling land,' he said.