Major Chinese cities cut land auction prices by up to 20 per cent to lure cash-strapped developers amid market gloom

Beijing, Hanghzou and Shenzhen are among the cities to have cut the reserve prices of land parcels going under the hammer
Almost a third of the 700 plots across China that went on sale since September had to be withdrawn because they failed to generate enough interest from developers

China property

Pearl Liu

Published: 8:30am, 24 Nov 2021

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Major cities in China are slashing the price of land they are auctioning off in an effort to attract bids from cash-strapped property developers facing a market downturn.

Beijing put 12 parcels of land on the market on November 19, including two in eastern Chaoyang district with a combined reserve price of 4.8 billion yuan (HK$5.9 billion), 15 per cent lower than they were priced in September.

The two plots failed to find buyers at the last auction in September, when they were offered as one large site. This time around they are being sold separately.

“The change means the cost of the land is smaller and was meant to attract more developers and make the land sale successful,” said Lu Wenxi, an analyst with Centaline Property’s Shanghai branch.

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Under a new centralised land-sale programme, some 22 cities including Beijing, Shanghai and Shenzhen are limited to three rounds of land sales this year.

Other cities such as Hanghzou, Shenzhen and Guangzhou have either lowered the prices of parcels on offer in the third and final round or relaxed the rules for developers buying land.

Hangzhou in eastern Zhejiang Province cut the price of four plots that had to be scrapped from the last round because of a lack of interest by as much as 15 per cent.

Guangzhou, capital of Guangdong Province, auctioned six plots that did not find a buyer in September’s land auction, with prices down as much as 20 per cent.

Jiangsu’s provincial capital of Nanjing, and its wealthiest city Suzhou, lowered the threshold for developers to participate in land sales last week. Suzhou’s planning bureau said the deposit for bidding on each plot in the third round of land auctions would be lowered to 30 per cent of the reserve price, from 50 per cent in the previous round.

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“Such favourable policies are signals of a relaxation in the real estate environment and underscore that the central government does not mean to kill the sector, but to regulate it better,” said Yan Yuejin, director of the E-house China Research and Development Institution.

Almost a third of the 700 parcels of land across China that have gone on sale since September have had to be withdrawn from auction because they failed to generate enough interest.

Land sales are a major source of receipts for local authorities.

The inertia in the country’s land sales set in after the central bank placed tight caps on loans, driving cash-starved and risk-averse developers to the sidelines.

Many of mainland China’s home builders are heavily indebted and struggling to pay off creditors. China Evergrande Group and Kaisa Group are among those facing serious liquidity crunches against the backdrop of Beijing’s efforts to control speculative bubbles in the residential real estate sector.

Even developers in relatively good financial health have been cutting costs. China Vanke, the country’s third-biggest home seller by sales, told its staff to “live frugally, spend small money and do big things” at a meeting last week, according to an internal document seen by the Post.

China’s monthly benchmark price index for new homes fell for the first time in six years in September, by 0.1 per cent on a monthly basis, according to the National Bureau of Statistics (NBS). It dropped by a further 0.25 per cent in October.