Developers build up land holdings

BEIJING: Mainland property developers have shrugged aside concerns over policy measures to curb home sales and are aggressively building up their land holdings.

Latest data from the Beijing Municipal Bureau of Land Resources shows that Beijing land sales rose 83.3% to 9.7 billion yuan (RM4.62 billion) in May, while Shanghai, Chongqing and Suzhou also experienced growth in both land demand and prices.

Economist Andy Xie said the increased land sales reflected a prevailing mood of optimism among developers, largely backed by the belief that the central government would not risk an economic slowdown. After a period of slow sales, local governments were starting to sell more land as their income depended on it, he said.

"The reason that developers can meet the expense of not selling anything and still have a good cash flow is that banks are not doing enough to make them pay back their loans," Xie said.

Comments from developers, meanwhile, underlined strong optimism over continued growth in the property market.

Feng Huimin, executive director of Fantasia Holdings Group, said developers had to expand and build new projects to maintain growth. "We have a good cash flow which is why we can buy lots of land," he said. Fantasia disclosed this month it would invest more than 300 million yuan in land purchases in Dongguan.

Greentown China Holdings invested about 2.1 billion yuan in land and acquisitions in Shanghai and Jinan during March and April and in its annual results for 2009 released in April said it would begin construction of 70 projects, representing an increase in gross floor area of 187% from last year.

China Vanke, the mainland's biggest publicly listed developer, signed contracts valued at 2.82 billion yuan in April for eight new pieces of land, located in Beijing, Hangzhou, Chengdu, Tangshan, Shenyang, Xian and Guiyang, according to company documents.

Powerlong Real Estate Holdings announced it would invest more than 78 million yuan in land purchases in Tianjin and Fuzhou.

Mainland banks were supportive of the property market last year. The property sector accounted for about 24% of the total 9.5 trillion yuan in bank loans on the mainland, according to Wind Database, a financial data provider.

Until the last quarter of 2009, the mainland's 14 listed banks had about 2.3 trillion yuan in outstanding property loans on their books, of which about 600 billion yuan was for property development and about 1.78 trillion yuan for homebuyers, according to Wind.

However, Yang Dianming, who specialises in commercial loans for China Minsheng Bank Corp in Beijing, said this year banks received repeated reminders from the China Banking Regulatory Commission and the Land Resource Bureau to be strict with real estate developers.

Besides buying more land, developers also refuse to make large cuts in property prices, even though sales volume slumped in May. Many made a symbolic gesture of lowering prices by just 1% to 2%.

Property prices in overheated regions fell slightly in May. The worst was a 0.6% drop in Hangzhou from the previous month. Beijing, Nanjing, Guangzhou, Shenzhen and Sanya all saw small dips, but prices in most second- and third-tier cities continued to rise, according to the National Bureau of Statistics.

"Based on the market, developers might carry out sales promotions, but it's very hard to see prices plummet," Gao Shanwen, chief economist of brokerage house Essence Securities, said.

Many developers are waiting for the property market to pick up momentum, Fantasia's Feng said, adding that they would rather not sell anything than offer their properties at low prices. "Land is so scarce these days. You don't want to sell all your properties at low prices and then realise you don't have any land left when prices go up."

Real estate developers are betting prices will rise by the end of the year because of inflation and market demand, according to Jing Ming, marketing manager at Yahao Real Estate. "Because of inflation, nobody wants to save money these days," Jing said. "There are not many other options than to invest in real estate."

In May, the consumer price index rose 3.1% from last year, a 19-month high, according to the National Bureau of Statistics. The authorities are aiming to contain inflation rates within 3% this year. The CPI does not take property into account.

Apart from buying land and not lowering prices, many real estate developers are building up more commercial properties due to new government policies in the residential sector, Jing said.

The central government raised the minimum down payment on mortgages for first properties of more than 90 sq m to 30% from 20%, and increased that on mortgages for second homes to 50 per cent from 40 per cent.

Powerlong investor relations director Lawrence Leung said commercial developments were attractive and commercial property in third-tier cities was a blue sea. -- South China Morning Post
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