(Yicai Global) June 21 -- The auction of land use rights in China’s major cities, such as Beijing, Guangzhou, Hangzhou and Chengdu, has been heated in the past two months, but overall, investment is sinking and the country’s land market is still depressed, market insiders said.

Developers, including both big state-owned firms and little-known smaller ones, are focusing on core cities and regions as part of a shift in the real estate market, putting prime land in high demand, said Chen Wenjing, director of market research at China Index Academy.

Beijing’s land auctions, for instance, are attracting dozens of real estate developers and bidding often hits the ceilings set by the government which means that the winner has to be determined by lottery.

But even though the land market in China’s major metropolises remains strong, the scale of investment in the housing market is shrinking. In the first five months, investment in property development slumped 10.5 percent from the same period last year to CNY1 trillion (USD141.6 billion), according to the National Bureau of Statistics. And the floor area of new construction projects plunged 27.3 percent to 85 million square meters.

China’s top 100 developers invested CNY429 billion (USD59.6 billion) to purchase land use rights in the five months ended May 31, a drop of 8.4 percent year on year, according to data from the China Index Academy. And only 8.2 percent of listed private developers bought land over the period as most of them are under great liquidity pressure.

Even in major first-tier cities, there is a big difference in interest depending on the location of the land. Of the five plots put up for auction in Guangzhou, southern Guangdong province on June 13, there were no bidders for three of them, but the other two had to be decided by lottery as bidding was so fierce.

And in smaller second-tier cities, demand for land in non-core areas is weak, Chen said. For example, competition is fierce for land plots in downtown areas of Hefei in eastern Anhui province, Changsha in central Hunan province, Qingdao in eastern Shandong province and Nanjing in eastern Jiangsu province, but plots in less central areas are mostly selling at their starting price at auction.

Most cities’ land markets are still under great pressure, Chen said. Whether or not the land market will recover or not depends on an uptick in property sales.

The increasingly stiff competition for land in major cities may help some developers to shift their focus towards outlying areas and fast-growing third-tier cities, she added.

Editors: Tang Shihua, Kim Taylor