Shanghai developer CIFI’s over 370 million yuan land bid deposit forfeited by government

In a rare move, the Shanghai city authorities have withheld land security deposits worth up to 374 million yuan from a major developer, citing irregularities, amid the government clamp down on property speculation to cool the overheated market.

Shanghai-based CIFI Holdings – one of the country’s top 20 Chinese developers by sales – said on Tuesday that the Shanghai Land Transaction Affairs Center decided not to return its security deposit because it didn’t attend the official scheduled tender submission, despite applying for the land use rights for the plots of state-owned construction land in the west of the city.

It was told by the authorities the move constituted a “breach of conditions”.

CIFI argued the forfeit was “without justification” and said it is “considering initiating an appeal to the relevant authorities”, according to a company statement to the Hong Kong stock exchange. CIFI’s Hong Kong shares dropped 1.3 per cent Tuesday, closing at HK$2.20.

“Rules have been less strict before,” CIFI Holdings chief financial officer Albert Yau told the Post, without giving further comment, as the company’s legal advisors entered the fray.

The Chinese government has introduced a raft of new measures since September in an effort to curb and regulate the red-hot property market, including raising home buyers’ down payment requirements, halting the granting of presale permits to some developers, and suspending developers’ domestic bond issuance.

Although the reason behind CIFI’s no-show remained unclear, analysts said the move by the authorities was much tougher than expected, as it is very rare to see a developer punished so severely for breaching rules at the bidding stage.

“This is a reminder to all developers, that they must pay attention to the rules,” said Yan Yuejin, a research director with E-house China R&D Institute.

“The government is strengthening its regulations nationwide to create a fair and transparent market, so that it can ensure a smooth supply of land.”

Collusion between developers during bidding at land auctions is not uncommon in China.

Last year, Shanghai government called off an auction in Changning District to prevent potential collusion among bidders, because the prime land lot had received 11 applications, with three deposits paid, and finally only one tender bid for the plot.