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China's land sales slump for second month as property chill bites

10/22/2021 | 06:04am EST
FILE PHOTO: Man rides a bicycle next to a construction site near residential buildings in Beijing

BEIJING (Reuters) -China's government land sales slumped for a second month in a fast-cooling property sector as cash-strapped developers stayed on the sidelines, adding pressure on local authorities dependent on such auctions for income.

The value of land sales nationwide fell 11.15% to 570.3 billion yuan ($89 billion) from a year earlier, according to Reuters calculations of finance ministry data released on Friday, after sinking 17.5% in August.

The slump comes as tighter regulations on borrowing by private developers since the summer of 2020 have increasingly eroded demand for land, after it reached a record high last year.

Private developers have bought at least 120.8 billion yuan of land in an ongoing round of land auctions held by 22 major cities, down about 80% from the first round in March-June, according to a Reuters analysis of public notices on the sales.

On average, land sales account for about a fifth of local government revenues. An extended sale slump could hurt https://www.reuters.com/world/china/fall-chinas-13-trln-land-sales-test-local-finances-economy-2021-10-07 local fiscal finances and investments as China's economy further slows while fending off contagion risks from the highly-indebted developer China Evergrande Group.

"The credit environment has rapidly declined since June, and financing for developers has been particularly difficult," said Lu Wenxi, chief analyst at property agency Centaline.

Even for developers that have managed to sell homes, they have to wait for months before receiving the funds from buyers, as it typically takes three or four months before mortgage loans are disbursed, Lu said.

Revenue from government land sales rose 8.7% to 5.36 trillion yuan in the first nine months of 2021, data from the finance ministry showed on Friday, slowing from 12.7% growth in January-August.

"The 31 provinces in (mainland) China are not equally dependent on land revenue," said Moody's analyst Amanda Du.

"The eastern coastal regions have high land values and low direct debt burdens, so even if there is a certain decline in land revenue, the impact is limited, because they have other relatively strong tax revenue or other incomes to compensate."

But other regions that already have large funding gaps and high leverage, and are more dependent on land sales at the same time, will face pressure, she said.

Land sales hit 8.4 trillion yuan in 2020, equal to Australia's annual gross domestic product, helping to stabilise local economies in a pandemic year.

STATE SUPPORT

Heightened concern over the indebtedness of developers such as Evergrande Group led Beijing in August 2020 to introduce the so-called "three red lines" - financial requirements that developers must meet in order to get new bank loans.

The grim financing landscape has cast a pall over the sector this year, with capital-starved real estate companies putting a pause on new projects and scaling back on purchases of land from local governments.

Their retreat has paved the way for state-controlled developers to dominate sales.

In Hefei, a populous eastern city in Anhui province targeted by speculative buyers and real estate companies in recent years, private developers bought 14.8% less land by value in the current round of auctions versus the first.

By contrast, state developers increased their purchases by 75.9%, according to the Reuters analysis.

But even cash-rich state developers have not yet managed to push monthly land sales back into positive territory.

"In the fourth quarter, land revenue will continue to decline," Centaline's Lu said.

"Now, the downward channel has obviously opened, and the market is already in a downward cycle."

Prices of new homes stalled for the first time in September, according to Reuters calculations of official data released on Thursday.

That bodes ill for the market in October, with autumn typically a peak season for sales.

($1 = 6.3988 Chinese yuan)

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Mainland China's Reliance on Land Sales by province) https://tmsnrt.rs/3lyvluJ

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(Reporting by Liangping Gao and Ryan Woo; Additional reporting by Beijing Newsroom; Editing by Jacqueline Wong and Ana Nicolaci da Costa)

By Ryan Woo and Liangping Gao


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
CHINA EVERGRANDE GROUP 0.44% 2.29 End-of-day quote.-84.63%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.34% 6.3643 Delayed Quote.-1.54%
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