Advertisement
Advertisement
China property
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Land parcels in Shanghai, pictured, and Beijing have been selling at auction for much lower premiums than a few months ago. Photo: Xinhua

Shanghai, Beijing land markets cool as funding constraints squeeze developers

Money raised by developers in debt market slumped 92 per cent in January from a year earlier

A dramatic fall in the premiums being paid for land in Beijing and Shanghai suggests government efforts to cool the market by placing tough financing constraints on developers are having a profound effect.

Five parcels of land in the two cities sold at auction last week at premiums that were just a fraction of what they were a few months ago.

Three plots of residential land in Shanghai were sold last Friday for a total of 4.5 billion yuan, a premium of just 1 per cent above the government-set starting auction price. Two plots of commercial and residential land in Beijing were acquired by two groups of developers on Thursday at a 10 per cent premium, a total cost of 4.1 billion yuan.

The contrast could not be starker with the sizzling auctions a few months ago, before 21 Chinese cities were subject to an orchestrated move to impose tough measures to arrest runaway home prices. Even last November, two months after the watershed curbs, a plot in Fangshan sold at a 200 per cent premium. Longfor Properties and Beijing Capital Development Holdings fought through 203 rounds of bidding to secure the land. This time around, the winners emerged after seven rounds of bidding.

The locations of the land parcels on auction last week went some way to explaining the lack of enthusiasm. The three plots in Shanghai are in Nanhui New Town, the most southeasterly tip of Shanghai, facing the East China Sea. The two plots in Beijing are in Fangshan district, 55 kilometres south of the city centre.

The Fangshan plots also carried maximum limits on the bidding price and the cost of any homes built on them, which reduced their appeal although the selling price didn’t reach the imposed cap.

Of the 50 land sales in January that exceeded 1 billion yuan tracked by Centaline Group, only 16 deals had a premium over 100 per cent. All of them are in hotspot second-tier cities such as Hefei, Hangzhou and Nanchang, while plots in first-tier cities were absent.

While developers have backed away from first-tier cities because of a lack of supply and stringent bidding requirements, they have not stopped acquiring land in second-tier cities. Nanjing and Suzhou last week dwarfed Beijing and Shanghai in terms of land sale, raking in 26.9 billion and 18.7 billion yuan respectively, according to China Index Academy.

Behind the cool down is a financing squeeze on developers, part of government efforts to undermine their purchasing power and deflate the real estate bubble. Homebuilders have been barred from raising funds in China’s onshore bond market since November, previously a critical source of funding for developers.

And since February 14, asset managers have been banned from channelling funds into property development projects in 16 cities that saw fast home price gains. In the past, property developers who faced restricted access to bank loans tapped funding from asset management products to jointly acquire land or co-develop new projects.

In January, developers raised a total of 13.3 billion yuan through private placement notes, medium-term notes and other debt instruments in onshore and offshore markets, according to Centaline Group. This compares to a 94.8 billion yuan monthly average last year and equates to a 92 per cent plunge from the same month in 2016.

S&P said in a note that the funding restriction will weaken Chinese property developers’ access to alternative financing and increase their cash flow burden.

The curbs, however, are benefiting large developers.

S&P credit analyst Cindy Huang said she expects market consolidation to accelerate and big developers to continue to gain market share. This is because large developers have more

sellable resources, higher geographic diversification, and better sales execution to ensure good contracted sales even as the industry slows. Strong contracted sales will also be important if companies are to maintain good access to bank credit.

This article appeared in the South China Morning Post print edition as: Premiums decline in top city auctions
Post