Major Chinese cities see more land auctions being scrapped, as broke developers hobbled by ‘three red lines’ stay away
- The average auction scrapping rate is 17 per cent for 20 cities that have finished their first round of land sales, rising from 6.5 per cent last year
- Developers are hesitant as they are unsure about the housing market in the short term and because they do not have much to spend, analyst says
The average auction scrapping rate was 17 per cent – up from 6.5 per cent for the same batch last year – in the cities, which have finished their first round of land sales, according to 58 Anjuke Real Estate Research Institute, a Shanghai-based property research firm. Land in 22 major cities in China now only goes on sale three times a year according to a centralised scheme introduced by Beijing early last year.
“Developers hesitated to make land purchases like before because, first, they are not sure about the housing market in the short term. Second, most are struggling to repay debt and really do not have much to spend,” said Yan Yuejin, director of the Shanghai-based E-house China Research and Development Institute.
“Many developers are still facing a lot of stress in terms of financing, and from a long-term structural perspective, the high-growth period for housing is probably already over. So demand won’t be strong as before,” Chen Dong, Pictet Wealth Management’s head of Asia macroeconomics research, said in a recent webinar.
About 60 per cent of China’s top 100 developers have not bought a single piece of land in the first five months of this year, according to data from China Real Estate Information Corporation (CRIC), one of China’s largest real estate brokers.
The total spend on land purchases among these developers stood at 468 billion yuan (US$69.5 billion) in the five months through May, 65 per cent down from that in the same period last year, according to CRIC data.
Property firms’ onshore bond financing edged down to 46 billion yuan in May, down 7 per cent from April, while offshore bond issuance plunged 54 per cent month on month to 4.9 billion yuan.
In recent months, Beijing has rolled out a number of policies to support the sector, while more than 100 municipal governments have eased restrictions on property sales and purchases, lowered down payment ratios and increased the quota of loans for home purchases.
Nanjing, the capital of China’s eastern Jiangsu province, for example, said last week that 13 out of the 44 pieces of land it will put on the market for the second round of auctions will not have a price cap for homes to be built on the land to attract developers.
“We will see more such land sale restrictions being relaxed to drum up sales, but it is likely to take time for these incentives to take effect,” said E-house’s Yan.