Developers withdraw from more land auctions in major cities

The proportion of plots of land withdrawn in the first round of auctions held between February and June this year in 20 major Chinese cities has increased, with cash-strapped developers reluctant to spend. The average auction scrapping rate was 17% – up from 6.5% last year – in cities which have finished their first round of land sales, according to the 58 Anjuke Real Estate Research Institute, a Shanghai-based property research firm. Land in 22 major cities in China now only goes on sale three times a year according to a centralized scheme introduced by Beijing early last year. “Developers hesitated to make land purchases like before because, first, they are not sure about the housing market in the short term. Second, most are struggling to repay debt and really do not have much to spend,” said Yan Yuejin, Director of the Shanghai-based E-house China Research and Development Institute.

China’s “three red lines” – measures in place since August 2020 to control the systemic risk posed by weak property developers – have sent the industry into a slump not seen since the 2015 stock market crash. As a result, more firms are joining China Evergrande Group and Kaisa Group Holdings on a list of developers failing to repay debt. Sunac, China’s fourth-largest developer by sales, for instance, failed to repay USD29.5 million in interest on a U.S.-dollar bond and was in default after a 30-day grace period that expired on May 12. It is also in negotiations with its onshore creditors to extend the deadlines for yuan-denominated bond payments. “Many developers are still facing a lot of stress in terms of financing, and from a long-term structural perspective, the high-growth period for housing is probably already over. So demand won’t be as strong as before,” Chen Dong, Pictet Wealth Management’s Director of Asia Macroeconomics Research, said in a recent webinar.

The developers were also only willing to pay slightly higher than reserve prices, with the premium rate at 5%, falling short of the 24% recorded for the first batch last year, 58 Anjuke said. About 60% of China’s top 100 developers have not bought a single piece of land in the first five months of this year, according the China Real Estate Information Corporation (CRIC), one of China’s largest real estate brokers. The total amount spend on land purchases among these developers stood at CNY468 billion in the five months through May, 65% down from that in the same period last year. In recent months, Beijing has rolled out a number of policies to support the sector, while more than 100 municipal governments have eased restrictions on property sales and purchases, lowered down payment ratios and increased the quota of loans for home purchases, the South China Morning Post reports.