(Yicai Global) March 21 -- Chinese regional governments recorded a 29 percent decline in sales of land use rights in the first two months of this year from a year ago, the largest drop since last July, as property developers are still hesitant about recovery and new investments.
From January to February, transfers slipped to CNY562.7 billion (USD81.8 billion) year-over-year, according to data that the finance ministry revealed recently.
Property developers usually need to provide a down payment of 50 percent of the price and the remainder will be paid in instalments within a year, according to a research report by Hua Chuang Securities. This is why financial data provider Wind said the actual decline in plot transactions in 100 Chinese cities over the two months was only 7.3 percent from a year ago.
The key reason behind the downturn is developers’ decreasing demand, per market insiders. Despite signs of recovery, "companies are prudent about the market and will not easily take action in land purchases," an analyst said to Yicai Global.
An insider at one of China’s top 20 property developers said to Yicai Global that the firm has basically not bought rights to build real estate since last year even to the extent that the supply has run out in some cities. "We will probably continue the 'deep plowing strategy' and buy land in the future if the market situation improves," the person said, adding that otherwise, the firm will give up on certain cities.
Last month, the total investment of China’s top 100 real estate developers dropped by around 20 percent YoY, according to property information provider CRIC China.
Revenue of China’s government-managed funds, mainly coming from selling land use rights, should increased by 0.4 percent YoY to about CNY7.81 trillion (USD1.14 trillion) this year, according to the finance ministry's annual budget report. Income from land transfers is not excepted to return to similar levels as before 2021, and provinces cannot rely on the land market to increase their fiscal revenues but the situation will become untenable if the annual drop will continue to exceed 20 percent, the brokerage added.
Still, core cities are showing signs of recovery with high-quality plots for sale. Since last month, premiums of plots in auctions in several cities such as Beijing, Suzhou, Hangzhou, and Nanjing have surpassed 7 percent.
Editors: Liao Shumin, Emmi Laine, Xiao Yi