Land Sales Jumped 50% in China’s Largest Cities During Q1

With China home prices at record levels in many of the country’s largest cities, residential land supply in first-tier cities in China – such as Beijing, Shanghai and Guangzhou – increased by over 50 percent from the same period a year ago, according to data from the China Urban Land Price Dynamic Monitor as cited by state media agency Xinhua.

These findings follow instructions from the Ministry of Housing and Urban-Rural Development and the Ministry of Land and Resources earlier this month aimed at cooling overheated housing markets in the Middle Kingdom. Fearing increasingly unaffordable housing and a looming bubble, the authorities are looking to increase supply in communities where demand is high, and put a damper on sales in cities with a residential glut.

More Supply for First-Tier and More Restrictions for Second

With local governments largely dependent on land sales for revenues, authorities in many cities have been reluctant to offer new sites for sale when developers were cautious about the future of the housing market. When home prices fell in many Chinese cities in 2015, developers grew reluctant to bid up the prices of new plots and the result was that land sales dropped 21 percent that year. With lower tier cities still suffering from an oversupply of homes in 2016, the value of land purchased by real estate developers dropped another 3.4 percent last year, according to the National Bureau of Statistics, despite a surge of auctions in the fourth quarter, as developer demand recovered.

Following China’s massive 2009 stimulus package in 2009, Beijing auctioned off 2,525 hectares of residential land in 2010, but that supply was reduced to 750 and 850 hectares in 2015 and 2016 after home purchase restrictions cut off developer opportunities for easy sales.

Central Authorities Hope to Steer Local Sales

While local governments have kept their eyes on opportunities to maximise land sales revenues, the big bosses in Beijing appear determined to use land strategically to control housing prices and reduces risks surrounding a housing bubble.

In a spate of 10 new notifications earlier this month, the officials announced that cities with less than a year’s supply of housing inventory should increase the amount of residential land for sale, and that communities with more than three year’s supply should suspend residential land sales.

The Beijing municipal government announced on its website last week that it plans double the supply of new land sold at auction this year compared to 2016, adding 12 million square meters of new sites to the market, which should yield 300,000 new homes.

The move represents the latest adjustment to land supply after the Beijing city government rolled out a series of restrictions in March targeting homebuyers amid skyrocketing house prices. Average property prices jumped more than 63 percent in less than a year and a half, according to data in the China Securities Journal from the China Real Estate Association, rising to RMB 60,738 yuan ($8,820) per square meter in February from RMB 37,221 ($5,409) in October 2015.

Mo’ Land Supply, Mo’ Problems

A report from Moody’s Investors Service last week predicted that the new land supply measures introduced by the Chinese government would have a variety of impacts on property developers, depending on what markets they are exposed to and at what point in the cycle they purchased their sites.

“These measures will have mixed implications for property developers, and we believe that housing price growth will slow in cities where land supply will increase, a credit negative for developers that purchased land at high prices during the past 12 months with the expectation that housing prices will continue to surge,” said Moody’s analyst Chris Wong, who added that developers in lower-tier cities with large housing inventories would benefit from the regulations.

Despite the flurry of new home purchase restrictions and calls for tighter credit, average new home prices rose 10.3 percent in March, according to the latest data from the National Bureau of Statistics, with 62 out of 70 cities included in the official survey reporting home price increases.