Beijing residential land supply cut by half this year

Residential quotas slashed to 610 hectares from 1,200 hectares in 2016

PUBLISHED : Tuesday, 21 February, 2017, 4:03pm
UPDATED : Tuesday, 21 February, 2017, 10:13pm

Beijing’s residential land supply has been cut almost in half for this year, raising the prospect of further home price increases in the Chinese capital.

According to the city government’s annual land supply plan, approved and released on Tuesday by an executive meeting of the municipal government, total new land supply for 2017 has been cut to 3,900 hectares from 4,100 hectares last year, while residential quotas have been slashed to 610 hectares from 1,200 hectares last year.

Beijing’s annual land supply plan is watched closed by the real estate industry as it determines the availability of land that developers can turn into sellable homes.

However, the latest supply plan means the quota has now been squeezed for seven straight years since 2011.

The continued tightening is due to the Chinese central government’s long-held intention to control the size of its megacities, in favour of developing small and medium-sized population centres.

Adding to that momentum is the latest promise by Beijing mayor Cai Qi that the city plans to cut total construction areas from the current 2,921 square kilometres to 2,800 sq km by 2020, meaning Beijing’s land inventory, instead of increasing, will decline by 30 sq km a year over the next four years.

The supply shortage was exacerbated from 2011 to 2016, when Beijing failed to meet its annual residential land supply targets, except in 2013, a review of the implementation reports issued by the city show.

Mayor Cai Qi has promised to make sure home price will not rise this year...but with less land supply I’m not sure how could he can deliver on that promise
Chen Xiaoqing, a Centaline Beijing’s researcher

Last year, actual new residential land supply through auctions was just 84.6 hectares, lagging far behind the 850 hectares quota reserved for private developers.

That 84.6 hectares might underestimate the actual supply, as public auctions only account for a part of the supply while some developers acquire land through other means, including the redevelopment of historic sites. So the exact residential supply data is impossible to calculate.

The 2017 land plan makes it clear that of the 3,900 hectares of total land supply, 1,755 hectares is considered “new land” while the remainder is redeveloped land. The full breakdown for residential land is not available.

Another ominous sign is that while the plan kept the quota for subsidised homes unchanged at 350 hectares, the quota for private residential development was cut by nearly 70 per cent to 260 hectares. The 590 hectare reduction translates into 164,000 fewer new flats being built.

The plan also specified that land supply in the six downtown districts could not exceed 20 per cent of the city-wide supply, which means even less supply in the downtown area.

“Mayor Cai Qi has promised to make sure home price will not rise this year, and has implemented various tightening on developers and homebuyers,” said Chen Xiaoqing, a Centaline Beijing’s researcher. “But with less land supply I’m not sure how could he can deliver on that promise.”

Yang Kewei, an analyst with industry consultancy China Real Estate Information Corp, said the big drop in private residential development quota would translate into a large rise in the proportion of subsidised homes to total supply, which underscored greater emphasis on ensure housing supply for the poor. But the greater portion of subsidised homes, usually well under market price, could drag down average new home prices.

Only residents with Beijing local household registration permits, and with annual income below a certain threshold, can apply for the subsidised homes.