- The premium on parcels of land in eight major cities that completed their first round of auctions for the year was up from 2021
- Most of the winning bids in the latest auctions have come from state-owned developers
Main photo: Land in China can only be sold three times a year, according to a centralised scheme introduced by the central government in early 2021. Photo: EPA-EFE
Competition between developers for land in mainland China has intensified, recent auction figures suggest, a sign that supportive measures may be soothing the country’s bruised property market.
The premium on parcels of land in eight major cities that completed their first round of auctions for the year was 5.4 per cent, an increase from last year, as home builders were prepared to go higher with their bids. The vast majority of the plots were bought by state-owned developers.
The cities included Beijing, Wuhan in central Hubei province and Chengdu in the southwestern Sichuan province.
Land in China can only be sold three times a year, under a centralised scheme introduced by the government in early 2021.
Hefei in southeastern Anhui province fetched 19 billion yuan (US$2.98 billion) in its first round, which finished on March 26, nearly triple what it took in the third round last year. Its land premium – the difference between the reserve price and the eventual selling price – was 12.5 per cent, the highest among the eight cities.
In the second and third auctions of 2021, which took place from May to the end of the year, the average premium across the country was just 3 per cent. About a third of the 700 parcels of land put up for tender were withdrawn in the last quarter.
“We definitely see developers are becoming more active towards buying land as compared to the lacklustre reaction last year, as more supportive measures are being rolled out,” said Ding Zuyu, executive director and CEO of the Shanghai-based E-house research institute.
China’s “three red lines”, measures in place since August 2020 to control systemic risk posed by weak property developers, sent the industry into a slump not seen since the 2015 stock market crash. Major developers such as China Evergrande Group and Kaisa Group Holdings defaulted on their bonds last year as a result.
Contracted sales at the nation’s top 100 developers tanked by 47 per cent in the first quarter of 2022 from a year earlier, as rising cases of debt defaults kept buyers on the sidelines, according to industry data.
But in recent months the central government and local authorities have moved to restore stability.
In January, the People’s Bank of China lowered the five-year loan prime rate – a reference rate for mortgages – by a modest 0.05 per cent to 4.6 per cent to reduce the borrowing cost of buying a home. And in March, the finance ministry decided not to expand a property tax trial to more cities this year, citing poor market conditions.
At the same time, more than 60 local governments ripped up old, restrictive rules in the first quarter of the year to revive the property market.
Suzhou and Nanjing became the latest cities to lift restrictions on non-local residents buying homes in a bid to revive the ailing market, according to government announcements on Monday.
Suzhou will allow non-local residents to buy homes after they have paid 24 months of social security, from three years previously. It also cut the restriction on resale of homes to three years, from five.
Nanjing said it would allow non-locals with identity cards to buy their first homes in the city.
However, many Chinese developers still do not have enough breathing room and their access to funds is still narrow.
“Most, especially the private ones, are very conservative when it comes to paying a large amount of money,” said Ding.
Most of the successful bidders in the latest auctions have been state-owned developers. In Beijing, for example, only CIFI, a Shanghai-based private home seller, won one parcel while the other 17 plots were snapped up by state-owned or state-backed property companies, such as China Overseas Land & Investment and China Resources Land.
The country’s top 100 developers have so far spent 227.2 billion yuan on land, some 60 per cent less than in the same period last year, before the property market crisis took hold. About 70 per cent of them have not bought a single plot of land so far this year.
A tight credit environment and the sizeable refinancing needs for the rest of 2022 will further strain Chinese developers’ liquidity and increase the number of defaults or distressed deadline extensions, rating agency Moody’s said in a report last week.
“We expect developers’ refinancing ability to remain constrained, particularly for financially weak developers,” said Daniel Zhou, an analyst at Moody’s.