Record land prices defy Beijing’s cooling efforts

New price records have emerged from land deals in cities from ­Wuhan to Guangzhou ­despite Beijing’s pledges to tame land inflation, reflecting the weakness of a centralised campaign to cool the housing market.

The mainland’s land market, dominated by municipal governments, plays a central role in the country’s urbanisation.

Local governments rely on land sales for revenues, developers are eager to launch projects in big cities, and both the banking system and its shadow counterpart offer credit to grease the deals.

Tightening measures introduced in some 20 cities at the end of September, mainly banning some people from buying homes or getting bank credit, have slowed home price growth a bit. But a shortage of new land, especially in crowded cities, has forced developers to chase after land parcels with high bids.

Meanwhile, Beijing has increasingly been turning to state intervention and even moral persuasion to manage the world’s second-biggest economy. But analysts say that it will be difficult for the government to overcome market fundamentals.

“Whether the land price will increase mainly depends on the market expectation on home-price gain in the future,” Joe Zhou, head of research at property consultancy JLL, said.

“The shortage of housing inventory could lead buyers to expect home prices to increase, even under strict tightening.

“In spite of all these cooling measures, we think there is little likelihood that home prices will see a large decline in the cities with red-hot property markets,” Zhou said.

China’s developers are betting big on higher housing prices.

On Tuesday, Longfor Properties and Beijing Capital Development won a land parcel in Guangzhou’s Baiyun New Town in a joint bid of 3.2 billion yuan (HK$3.7 billion), paying about 47,000 yuan per square metre for the site. That price was already higher than the average housing price in the area, and it was a record high for this year.

In Wuhan, the capital of Hubei province, an investment company under Ping An Real Estate won a land parcel in Hanyang district for about 11 billion yuan, or about 13,500 yuan per square metre. It was the highest land-sale price by total amount in Wuhan this year, even though it did not reach the 12 billion yuan ceiling price set by the government.

The frenzy has also spread into Hunan province, where a land parcel of some 80,000 square metres went through 114 rounds of bidding before selling for 2.9 billion yuan, 180 per cent above the starting price.

These deals, with different sources of funding, will test how high home prices can go.

“The housing market will cool down further in the second half of 2017,” Larry Hu, head of China economics at Macquarie Securities, said.

“The land market could be cooled more than the end-property market, as land prices are more volatile than housing.”

But Xia Dan, a senior researcher with Bank of Communications, said that a small inventory of new homes in China’s major cities had made it urgent for developers to boost their land reserves for future development.

“For those cities where supply falls sharply behind potential demand, the record land-sales prices could be a normality,” Xia said.

However, MK Tang, a senior China economist with Goldman Sachs, said at a Hong Kong briefing that the mainland was likely to have a “soft landing in the housing market”.