Soaring land prices raise profit fears

Soaring prices have pushed mainland cities' revenues from land sales to record highs this year, a trend industry analysts fear will erode developers' profit margins.

Reports on "king land" - land parcels fetching mega prices - prompted the Ministry of Land and Resources to call in officials from 16 cities including Shanghai, Beijing, Guangzhou, Shenzhen, Suzhou, Nanjing, Hangzhou and Tianjin in September, ordering them to eliminate misleading price signals and ease hopes of more appreciation.

But big listed developers with bulging war chests following massive fundraising abroad and strong property sales at home have bid up land prices, particularly in top-tier cities. To them, sufficient land reserves and a growing market share are more important as their share prices are more sensitive to sales than profits.

"We expect China's land market to continue growing in terms of [gross floor area] purchased, but with fewer cases of 'king land' bidding as the market is now aware that the regulator is on the lookout for this kind of practice," said Edison Bian, a property analyst with CCB International in Hong Kong.

The problem of aggressive bidding came to the fore when Sunac China, a mainland developer in which United States buyout firm Bain Capital holds a stake, bought a prime plot in Beijing in September for more than 70,000 yuan (HK$88,780) per square metre, the highest ever in the country.

Others such as Evergrande and Kaisa have also been aggressively building up their land reserves in top-tier cities, where home prices have been surging and demand has remained strong despite the government's tightening efforts.