Chinese Real Estate Firms Eye Bargains After Poor Year of Land Sales
Zhang Xinchen
/SOURCE : yicai
Chinese Real Estate Firms Eye Bargains After Poor Year of Land Sales

(Yicai Global) Dec. 27 -- China's top real estate developers are snapping up readily available land at a discount as authorities increase supply to close out a poor year of sales.

Poly Developments and Holdings has picked up two parcels this month, paying CNY1.65 billion (USD240 million) and CNY5.4 billion for two plots in Guangzhou, and China Vanke took on 14 new housing developments last month, adding 3.9 million square meters to its inventory at a cost of CNY26.4 billion.

Yang Guoqiang, chairman of Guangdong-based Country Garden Holdings, also hinted that the company, which has avoided any purchases for the past six months, is opening the doors to invest again.

Local governments rely greatly on land sales for revenue and typically increase supply towards the end of the year. This year has been no exception, largely because of a huge dip in land sales that made local supply goals unachievable. Beijing had planned to sell 1,200 hectares this year, but has only put 408 hectares on the market and only sold 347 of them, 49 percent less than a year earlier.

Companies have been losing interest in non-prime land because it is too costly to add value, said Zhang Dawei, chief analyst at Centaline, one of Hong Kong's largest real estate agencies. Even though there have been some record-setting deals, there have also been more failed sales, he added.

On Nov. 26, Beijing shifted 12 parcels of land -- marking the city's largest number and volume of sales in a single day -- and earned CNY31.6 billion in the process, though it had to relax bidding rules in order to achieve that. The city also made CNY6 billion from sales on Dec. 4 and Dec. 11, after bringing in CNY49.5 billion in November, giving it a total of CNY170 billion (USD24.7 billion) throughout the first 11 months of the year.

Other cities have also been looking to increase land supply as the year comes to a close. First-tier cities combined to sell 90 lots last month and second-tier cities sold 1,400, their best month this year, according to data from Centaline.

Many of the sales were a result of eased bidding restrictions or significantly lowered prices. Land rates in the second half of this year were as much as 50 percent less than in 2016 or last year. One lot sold in Guangzhou on Dec. 3 went for CNY13,505 (USD2,000) a square meter, less than half of the CNY27,274 a square meter that a nearby parcel sold for in August 2016.

Fighting Back

Despite all the record breaking, 2018 has been far from a smooth sail for land sales in China.

There had been 324 abortive auctions for residential land in first- and second-tier cities as of Dec. 17, up 140 percent and the largest amount in six years, Centaline data showed. Failed auctions were also on the rise in third- and fourth-tier cities.

"The falling temperature of the land market is obvious," an executive at a top 10 real estate developer told Yicai Global. "Many governments are afraid of abortive auctions."

China's 25 top real estate companies spent CNY76.7 billion, CNY72 billion and CNY39.4 billion on land in September, October and last month -- the first time there has been a three-month stretch without them spending over CNY100 billion. Before September, they had been spending around CNY120 billion to CNY200 billion each month.

The sharp rise in supply and dive in demand has led to a low prosperity index for the market, and led to large declines in the price of land compared with the past two years.

Editor: James Boynton

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Keywords: Real Estate , Property