Two clouds hang over Beijing's boom

Two major doubts hang over any developer planning to dip into Beijing's booming property market, according to Zeng Fang, chairman of the billion-yuan, privately owned Dee Heng Group - life after the Olympics and land supply.

Although strong economic growth and development ahead of the Games points to a positive post-Olympics market in Beijing, not even a veteran like Mr Zeng can say whether there will be a crash.

Mr Zeng said he visited Sydney shortly after the 2000 Olympic Games and saw property prices take a dive.

'But I tend to believe that that was because the population of Sydney is relatively small, in which case, Beijing may follow a different path,' he said.

Beijing has also been alone in that probably no other Olympic host city has seen land disputes on the scale that it has experienced over the past few years.

Mr Zeng said the other source of uncertainty was government land provision.

'Although urbanisation has lead to solid demand in the Beijing housing market, property prices are largely dependent on land provision,' Mr Zeng said.

Developers have speculated about land availability since 2002, when the Ministry of Land and Resources issued regulations banning 'contract-based transfers' which tended to be back-room deals between developers and officials.

The ministry ruled that all land for commercial use must be sold through auction in a bid to make transactions more transparent.'A bidding system is more open, transparent, and fair, not only to local developers, but also to domestic developers from other areas, and for overseas investors,' an official from the Beijing Municipal Bureau of Land and Resources said.

Last year, the government had sold land use rights to 57,200 hectares through the auction system, 35 per cent of all land made available for development and an increase of 3 per cent over 2004, according to ministry data.

The official said releases through public bids would be a much bigger share this year because 'the historical unsolved problems have gradually diminished'. Mr Zeng applauded the plans, saying they ushered in a much 'safer' environment for developers.

'It used to depend on sheer luck. Whether or not you got the land depended on whether you happened to know the officials in charge of the project,' he said.

'With everything opaque, it used to be very common practice that even two similar neighbouring blocks of land could be transferred for dramatically different prices. The officials had too much discretion to make decisions.'

But the auction approach has not reassured developers about the municipal government's long-term plans, the absence of which has triggered panic in the past about land scarcity.

The bureau official said authorities had problems providing detailed land release timetables because 'demolition work is the hard part of the process and the completion date is sometimes unpredictable'.

But the official also said the agency was definitely aiming to be able to 'forecast the long-term development in the same way the Hong Kong government has been doing'.

Mr Zeng also said the bidding system locked small and medium-sized developers out by demanding high capital thresholds. 'In recent years the land going under hammer is mostly large plots. To get the plot imposes a higher demand on the capitalisation of the bidders, who tend to be facing a more severe capital drain than before,' he said.

The biggest complaint about the bid system is the role it has played in driving up land prices. Insiders say that in some cases in Beijing the reserve prices for blocks were so high that the auctions had to be aborted.

Wang Lina, deputy head of the financial research centre at the Chinese Academy of Social Sciences, said the new system was a mixed blessing.

'On the one hand, the openness and transparency of land transactions can help curb corruption and avoid the once rampant 'under-the-table' deals.

'But it is still just a patchy policy that does not address the essence of market trades,' Professor Wang said.

She said the government 'innocently' believed it could create market conditions by introducing bidding and auction regulations but, in reality, the property market is 'policy-oriented', 'a fruit of the planned economy model'.

Professor Wang said it was a universal principle that when a government was not only a market regulator but also a player, its profit-driven behaviour impeded market fairness.

'That explains why, contrary to many new policies introduced by the central government to benefit lower income groups, local governments are keener than ever on high-end property developments,' she said.