China's 'land kings' under threat as tightening measures bite

PUBLISHED : Saturday, 08 March, 2014, 1:40am
UPDATED : Saturday, 08 March, 2014, 1:40am

The days of mainland developers snatching up premium properties with record-breaking offers are coming to an end as cooling measures bite and sale prices are squeezed, ending the reign of a handful of "land kings" in the world's second-largest economy.

First coined during the stimulus-fuelled 2009 real estate boom, the Chinese expression is used to describe developers willing to pay whatever it took to secure land banks.

But while the cost of land in first-tier cities such as Beijing and Shanghai soared 135 per cent in the third quarter from a year earlier, property sale prices inched up just 15 per cent, according to BNP Paribas.

When there’re a lot of people after a piece of land, we’d rather miss the land

The already high costs and the prospect of slowing sales mean the days of records being set at land auctions are coming to a close, analysts say.

"Developers will be more rational when bidding for land this year, unlike the huge number of land kings we saw the year before," said Lin Bo, vice-research director at real estate information provider CRIC. "Considering the risks and costs, major developers are not willing to pay for premium land now."

China Vanke, the country's largest listed developer, said on Thursday that one of its operating strategies was not to be a land king. "When there're a lot of people after a piece of land, we'd rather miss the land than buy wrong," said Tan Huajie, secretary of the board.

Vanke has won 13 pieces of "premium land" in the country since 2008, making it the second-biggest "land king" after state-backed Poly Real Estate, according to CRIC.

Any slump in prices paid at land auctions could also have an impact on the mainland's indebted local governments, for whom such sales form a major portion of revenue. An average of 24 per cent of local government revenue came from land sales in 2013, the latest data from the Ministry of Finance showed.

Mainland data last month showed that sale price rises eased for the first time in 14 months in January, in a sign that the government's more than four-year campaign to rein in property prices to avoid a bubble could finally be starting to bite.

This comes after a string of record-breaking prices being paid at government land auctions.

In September, Sunac China beat seven rivals to win a residential land plot in Beijing for 2.1 billion yuan (HK$2.7 billion), the ceiling price set by local authorities. A day later, Hong Kong-listed Sun Hung Kai Properties won a commercial plot in Shanghai for 21.8 billion yuan, a record high in the financial hub.

In a further sign that the market may be losing steam, some smaller developers have already said they would not compete for sites until market conditions improved. Private developers Yuzhou Properties and CIFI said last month that land prices had become too high.

Nearly 20 per cent of property sold to land kings since 2008 remained unbuilt, while 3 per cent of the deals were forfeited by developers due to financing issues after they paid deposits, CRIC said.

With prices in first-tier cities expected to slow to single-digit growth or stay flat this year, and private developers increasingly entering the market, the days of state-owned property companies bidding up for premium sites are expected to draw to a close.