Land is in demand in Beijing's Central Business District.

Beijing halts tender of hot land site at politically sensitive time

Beijing suspended the tendering for a plot of land in its central business district this week to avoid further escalation of prices in the frothy real estate market at a politically sensitive time.

The hot demand for land in the capital since last year has attracted media attention and sparked concern about falling profit margins among developers.

The city's income from land sales grew 128 per cent last month from a year earlier to 40.3 billion yuan (HK$51.1 billion), while the cost of built floor space rose 31 per cent to 13,400 yuan per square metre, according to data from CRIC, a unit of real estate services firm E-House (China).

Bidding for the land parcel in Hua Jia Hutong, on the financial street within the capital's core area, was widely expected to push the city's land price to a record.

We know that the land price in Beijing is very high. But we must win the bid

The starting price for the 20,664 square metre site was set at 3.55 billion yuan, the land bureau said in a statement. Bidders were required to place an initial deposit of 1.1 billion yuan.

However, the bureau announced on Monday that the tender was "temporarily suspended". It did not give any specific reasons.

Industry analysts attributed the suspension to Beijing's efforts to cool the land market before the annual meeting of the National People's Congress next month, which will unveil broad policies for this year.

Excessive growth in land prices might expose municipal officials in the capital to more pressure from the country's top leadership.

The land market in other top-tier cities, such as Shanghai and Shenzhen, is also red hot.

"The land bureau is keeping the exact reason of the suspension pure guesswork. I think it is to avoid further shock [from the result of tendering] to policymakers and investors at a time when the land market is already very hot," said Jiang Yunfeng, a research director at China Index Academy, the mainland's top real estate consultancy.

The bureau was not available for comment.

The parcel in Hua Jia Hutong was to become the first site made available for residential use within the city's second ring road in almost a decade.

"The location determines that it will set a new record, regardless of when it is launched," said Bei Fu, a real estate sector credit analyst at ratings agency Standard & Poor's. "However, the suspension comes at a politically sensitive time.

"The hot land market has put policymakers in a bind. The property market tightening measures in Beijing are the harshest across the country. Yet the outcome so far seems not to have been very satisfactory."

In recent months, developers have been competing fiercely for newly released land parcels in Beijing, especially those within the city's fourth ring road.

Most new launches of home projects are now beyond the fifth ring road, or even outside the sixth ring road, which means an hour's drive from the city centre if traffic is smooth, which is rarely the case.

"We know that the land price in Beijing is very high. But we must win the bid as the supply of new land in Beijing in such locations will become less and less," an executive from a top 20 mainland developer told the on condition of anonymity.

Analysts said the Beijing land bureau would relaunch the tender in a few months and that the starting price would probably be set at a higher level, which was what happened when a site in a prime location was auctioned last year.

The tendering of a plot in Xia Jia Hutong, within the third ring road, was suspended just a day before the planned auction in May but was then relaunched in July at a starting price of 1.36 billion yuan, 50 million yuan higher than the original price. The land, zoned for residential use, was eventually sold at 1.77 billion yuan, with 14 bidders competing.

This article appeared in the South China Morning Post print edition as: Beijing suspends bidding for hot site amid price surge