China land auctions scrapped in Guangzhou

HONG KONG (Nov 2): A land auction for a major new development in the southern Chinese city of Guangzhou was abruptly cancelled by the Chinese authorities, as developers feel the squeeze from tight financing and continuing property sector curbs.

The authorities in Guangzhou decided to scrap land sales for 12 plots of land in the south of the city on Tuesday, for mostly commercial and also mixed residential usage, according to announcements posted on the Guangzhou Municipal Land Resources and Housing Administrative Bureau website.

The move in one of China's largest cities in the southern economic powerhouse of Guangdong province, comes after a statement from China's State Council on Saturday saying it would "unswervingly" maintain nationwide property curbs to cool the country's frothy market .

Some analysts said the cancelled land sales, while not unusual in Guangzhou, could have been caused by poor pre-sales bids with developers now hobbled by tight financing.

"It's something that people have been expecting because people know the cash flow positions of major developers are very, very tight," said Alan Chiang, head of residential property in China for DTZ, a property consultancy. "It's very difficult to get financing these days."

A Guangzhou land bureau spokeswoman declined to give details on the reasons for the withdrawal when contacted by Reuters, but the Southern Metropolis Daily said the auctions had been scrapped just three hours beforehand.

Some of the larger sites, including a mixed residential and commercial plot of 20,241 square metres with a pre-sale starting price of 1.13 billion yuan (RM556.4 million), was to form part of a new 36 sq km business and exhibition hub on the southern fringes of Guangzhou around a new high-speed railway station linking to Hong Kong and other cities.

With the Guangzhou government now "facing a severe real estate market adjustment and an unfavourable initial sale, it will cause industry concerns about the future prospects for this high-speed model of development," the paper reported.

Authorities did, however, release three smaller plots of land, but they sold for relatively low prices including a plot of 12,123 sq m that fetched 485 million yuan.

After a slew of measures by Beijing's leaders since late 2009 to rein in surging property prices — a potential trigger for social unrest — residential transaction volumes have dropped since September and some developers have slashed prices for new developments in cities like Shanghai.

A private survey earlier this week showed the average home price in China's 100 key cities fell 0.23% in October from a month earlier .

"Reasonable cooling and price correction in the property market are welcome by governments, but a collapse is ill-affordable," wrote Citi in a Nov 1 note that predicted another 10%-15% fall in real estate prices in China's first-tier cities such as Guangzhou in the fourth quarter. — Reuters