Land Goes Unsold as Developers Back Away from New Projects

While analyst opinions seem to vary regarding the depth of the downturn in China’s real estate market, developers in Beijing, Chengdu and Jiaxing are keeping their money in their pockets, and the result can be seen in land that went unsold at several auctions in the last two weeks.

According to a report in Reuters, during the week that ended on August 2nd, two out of five Beijing plots put up for sale by the city government failed to receive any bids – the first time that a land sale had been snubbed like this in the city since 2011. The two unwanted sites had reserve prices set near the city’s record high.

Then last week, three out of four lots put up for auction in the suburbs of Chengdu, the capital of western China’s Sichuan province, received no bids. According to date from China’s National Bureau of Statistics, average home prices declined 0.6 percent in Chengdu last month – the same rate as in Shanghai.

In a study of real estate investment prospects for China’s cities released in June this year by the Urban Land Institute, Chengdu was singled out a city whose prospect were looking riskier than they had in the past. The authors noted that property investors have become “increasingly cautious about the prospects for many Tier 2 and 3 cities, especially those with oversupply issues such as Chengdu, Tianjin and Shenyang.”

In Jiaxing, a third-tier city in Zhejiang located halfway between Shanghai and Hangzhou, the city government also faced challenges finding buyers for land last week. According to local media reports, of four plots put up for sale on August 6th, in the city’s first land auction of the month, three received no bids. The room used for the auction is said to have been largely empty.

Land Sales Reflect Slowing Investment

The lack of demand for land shows the decreasing interest in new projects among the nation’s real estate developers as they struggle with falling prices and a growing backlog of unsold homes.

According to data published last month by the National Bureau of Statistics, year on year growth in real estate investment in China fell to 14.1 percent during the first six months of 2014. The same report showed that the amount of land sold across China fell by 5.8 percent during the first six months of the year, compared to January to June 2013, to 148 million square metres.

As local governments typically rely on land sales for the majority of their revenues, any continued slowdown in land sales will put more pressure on cities to relax home purchase restrictions and take other measures aimed at stimulating demand for housing.