Chinese developers to remain cautious on buying land

PUBLISHED : Wednesday, 09 July, 2014, 5:02am
UPDATED : Wednesday, 09 July, 2014, 5:02am

Mainland developers will likely remain cautious when bidding for land parcels in the second half of the year, even though property sales may recover and local governments plan to increase land supply, industry analysts said.

The land market started this year in a frenzy, buoyed by record property sales in 2013. However, it cooled off in the second quarter as developers conserved cash in anticipation of a deepening market downturn.

"The land market has not bottomed yet," said Tian Ming, the chairman and founder of mainland developer Landsea Group.

He anticipated opportunities later this year or even next year as the unfolding market correction would probably last three years, he told the South China Morning Post.

Evidence of the trend can be seen in the numbers at China Vanke, the country's biggest developer by sales. In the first half, it spent 11 per cent of contracted sales revenues to replenish land reserves, down from 34 per cent last year.

Vanke's land spending shrank to 11 billion yuan (HK$13.8 billion) from 28 billion yuan during the period, while contracted sales bucked the trend and jumped to 101 billion yuan from 84 billion yuan.

Looking ahead to the second half, "developers will pick up their interest in buying land but will remain cautious", real estate consultancy E-House (China) said in a report last week.

Another consultancy, Shanghai Deovolente Realty, is even more pessimistic.

"Developers will face rising pressure and thus beef up their efforts to sell out projects that are already launched. There is little chance of improvement in the land market in the second half," said Gu Feifan, the firm's deputy general manager in charge of business operations.

Analysts said developers would continue to compete head-to-head in first-tier cities where land supply would be limited, particularly in the central areas where housing demand remained strong.

Most developers will shun third and fourth-tier cities and some second-tier ones such as Ningbo, Hangzhou and Tianjin, which face a serious oversupply of home inventories. However, they would still buy land in other cities including Xiamen, Nanjing and Chengdu, analysts said.

Data from the National Bureau of Statistics showed mainland developers bought 110.9 million square metres of land in the first five months of this year, down 5.7 per cent from a year earlier. Meanwhile, property sales fell 7.8 per cent to 360.7 million sqmetres. Official data for property activity in the first half is scheduled to be announced next week.

The current consensus among developers and industry analysts is that the country's top leaders will let the property market correct itself. The central government's fine-tuning of policies to boost the slowing wider economy would contribute to improved sentiment in the real estate market and support a recovery in sales, they said.

However, most cities failed to sell half their full-year land supply target and would need to offer more parcels for public tender in the next six months to make up for that, E-House said.

Local governments often push out land supply in tandem with the ups and downs in the real estate market to maximise premiums so that they can finance other investment projects.