Jump in One Lower-Tier City's Land Prices Hints at Sharp Real Estate Recovery
* A recent day of land auctions in the capital of Anhui province saw many plots going for 80% above the initial bid price, a sharp increase compared to similar auctions in March and a hint the real estate market is recovering
* This may be due to developers’ easier access to financing and a loosening of government restrictions on the sector
(Beijing) — On one recent day in April, 13.2 billion yuan ($1.68 billion) worth of land was sold at auction in Hefei, capital of East China’s Anhui province, with the sale prices of eight of the 13 transactions exceeding the initial bid prices by at least 80%.
The Hefei auction was notable considering that in the previous month, land auction sale prices in second-tier cities on average exceeded the initial bid prices by less than 30%, according to Caixin calculations.
The scene in Hefei hints at a sharp recovery in China’s property market since March. Until that point, the market had been flashing warning signs since authorities imposed a series of tightening measures last year.
Rising land prices have the potential to drive up home prices in a market under close scrutiny by the country’s policymakers. In March, new home prices were up 4.2%, 12.2% and 11.4% year-on-year in 70 of China’s first-, second- and third-tier cities respectively, according to data released (link in Chinese) by the National Bureau of Statistics (NBS) in mid-April.
In a meeting (link in Chinese) on April 19, the Politburo, the top policymaking body of China’s ruling Communist Party, once again mentioned its view that “housing is for living in, not speculation” in its meeting statement. The Politburo had dropped the oft-repeated phrase from its statements for its meetings in October (link in Chinese) and December (link in Chinese).
On the same day, the Ministry of Housing and Urban-Rural Development and the Development Research Center of the State Council issued a warning about rapidly increasing home and land prices in some cities, China’s official Xinhua News Agency reported (link in Chinese).
Growing land sales
The heating up of the land market this year stands in stark contrast to 2018, when 1,808 plots failed to be sold at auction in 16 major cities — up 93.16% from a year earlier, according to data from property consulting firm Beijing Zhuge Zhaofang Information Technology Co. Ltd. The number of failed land auctions in some first-tier cities reached the highest level in nearly a decade.
In 2019, however, things changed. Several local governments in second-tier cities were selling quality land plots, which stimulated their markets and drove up land premium rates, or the percentage by which the final sale price exceeds the opening bid price at an auction. The rising land premium rates suggest property developers have regained confidence in the market, according to property consulting firm CRIC’s research in April.
Land markets rebounded in second-, third- and fourth-tier cities in March, a research agency under state-owned China Poly Group Corp. Ltd. said in April. The average land premium rate in second-tier cities rose 26%, returning to the annual average level in 2017, according to its research.
The recovery in the land market was driven by the improved financing conditions for property developers. Developers borrowed nearly 300 billion yuan in March alone, according to research by Hong Kong-based Centaline Property Agency Ltd. Their financing costs have also dropped as the cost of issuing domestic corporate bonds declined to less than 5%, and the costs of some other type of financing fell below 4%.
Developers’ financing benefited from a larger-than usual increase in China’s total social financing (TSF), a broad measurement of credit and liquidity in the economy. In the first three months of 2019, China’s TSF grew by a net 8.18 trillion yuan, up 2.34 trillion yuan from the same period last year, according to data released (link in Chinese) by the People’s Bank of China, the central bank. In March, the TSF growth was 2.86 trillion yuan, the highest March increase since the central bank began publishing the data in 2002.
Rising home sales
Total home sales by floor area rose 84.82% month-on-month and 11.28% year-on-year in 25 mainly first- and second-tier cities, according to property research firm China Index Academy Ltd.
The total floor space sold in first-tier cities started to increase in March, up 122% from the previous month, according to China Index Academy’s research. Beijing experienced the strongest increase, with the amount of floor space sold surging 236% from a month earlier and 293% from a year earlier, while floor space sold in the second-tier cities increased 84% from February, the research said.
Official statistics are also showing signs of a property market recovery. The decline of new home sales by floor space nationwide in the first quarter of 2019 narrowed to 0.6% year-on-year from a 3.2% decline in the first two months, and property investment grew by 11.8%, the highest in four months, according to NBS data (link in Chinese) released on April 17.
The recovery in the housing market is the result of several factors, said Deng Zhihao, a property expert in Guangzhou. “A lot of local governments have adjusted their policies on the property market, and the central government has also loosened monetary policy,” Deng told Caixin.
At the end of 2018, China’s housing ministry has softened some of the language on the property market, allowing different cities to implement different policies based on their own circumstances. More developed cities like Beijing, Guangzhou, Shanghai and Shenzhen lowered the value-added tax rate and stamp duty on home purchases, while some other cities like Zhengzhou, Harbin, Hefei, Chengdu and Changsha loosened financing requirements on home purchases.
In addition to the adjustment in local policies, the average national mortgage rate for first-time homebuyers has declined for four straight months, and looks like it will drop again in April, according to data released by Jianpu Technology Inc. last month.
If the year-on-year increase of home prices exceeds 10%, it will be more likely to trigger regulatory tightening, an executive at a major Chinese property developer told Caixin.
Compared with home prices at the end of 2018, the current prices have increased only marginally, Deng told Caixin. “If home sales remain relatively high, the growth of home prices may pick up around May.”
Another round of policy tightening?
The current increase of home prices remains within regulators’ expectations, and therefore, policymakers haven’t rolled out any specific rules nationwide, Caixin has learned from several industry insiders.
“However, local governments are very sensitive about home prices,” the executive of a major Chinese property developer told Caixin. Some local authorities set a 10% year-on-year increase as the threshold for whether to introduce tighter regulations, and some set 5% year-on-year increase or 1% month-on-month increase as the threshold, the person said.
“The relationship between the Chinese property market and broader economy is somewhat subtle,” Deng told Caixin.
When the economy is good, policymakers tend to add regulations as part of long-running efforts to revamp China’s economic structure, and when it is bad, they tend to stimulate the property market to improve the economy and boost employment, Deng said.
China’s economy grew at a rate of 6.4% year-on-year in the first three months of 2019, according to official data. At its April meeting, the Politburo referred to the situation as “better-than-expected” and “a fine opening for 2019.” However, it also warned of lingering pressure on the economy and vowed support.
China’s economy hasn’t bottomed out completely, and the uncertainty remains, said Zhang Hongwei, director of the Shanghai-based Tospur Real Estate Consulting Co. Ltd.’s research center.
Monetary policy, which is closely related to property regulations, is expected to tighten, as the central bank said in a quarterly meeting in April it would keep the money supply under control as the economy improves.
“We think the positive effect of both monetary and industrial policies will gradually disappear after the first quarter,” Kris Li, an analyst with SWS Research Co. Ltd., said in a research note.
Contact reporter Liu Jiefei (email@example.com)
May 25 18:53
May 25 00:48
May 24 22:24
May 24 18:31
May 24 16:37
May 24 16:03
May 24 15:54
May 24 14:18
May 24 13:52
May 24 11:43
May 24 02:36
May 24 02:29
May 24 02:51
May 23 19:33
May 23 18:53
- 1Chinese DNA Sequencing Firm BGI Faces Legal Battle with Illumina
- 2Former Chief Securities Regulator Put Under Investigation
- 3Exclusive: Saudi Oil Colossus Wants to Shift Its China Business Downstream
- 4New Credit Bureau Finds Good Data Is Hard to Come By
- 5Central Bank Reveals First Step to Unifying Benchmark, Market Rates
- 1Power To The People: Pintec Serves A Booming Consumer Class
- 2Largest hotel group in Europe accepts UnionPay
- 3UnionPay mobile QuickPass debuts in Hong Kong
- 4UnionPay International launches premium catering privilege U Dining Collection
- 5UnionPay International’s U Plan has covered over 1600 stores overseas