China’s cash-strapped developers have become reluctant to acquire land even as some local governments relax bidding rules, adding to signs of their liquidity crunch and threatening to deepen the nation’s economic slowdown.
Land plots auctioned in the fourth quarter through Dec. 20 only fetched an average 3% premium over their starting prices, according to data compiled by China Real Estate Information Corp. That’s down from a 17% premium in the second quarter and 8% in the third, said the research agency, which tracks auctions across 300 Chinese cities.
Faced with slumping home sales, limited access to funding and rising borrowing costs, many Chinese developers have been refraining from replenishing their land banks this year. While Beijing is fine-tuning its long-running crackdown on the property sector and recently called on banks to help maintain its “steady and healthy development”, it has so far offered little help to boost developers’ confidence.
“It’s unlikely the market sentiment will be restored in the short term, and we wouldn’t expect any notable recovery in land sales in the first half next year,” the CRIC said in the report.
Weaker land sales bode ill for the world’s second-largest economy, which slowed in the third quarter as the property and construction sectors shrank. It’s also set to worsen the debt problem at local governments, which, according to E-house China Research and Development Institute, rely on land sales for about 40% of their revenue. Municipalities are already facing revenue pressure from the flagging economy and struggling under a mountain of debts following years of investment binges.
Earlier this year, more than a dozen large Chinese cities limited the number of land auctions in 2021 to three, instead of holding multiple smaller-scale events throughout the year, to prevent developers from inflating land prices. In November, however, some eased transaction requirements for developers, such as by reducing deposits ahead of bidding or refraining from asking for full payment within a month, according to the official Securities Times.