(Yicai) Nov. 15 -- Chinese real estate developers are still cautious about the prospects of the land market even though 16 major cities canceled the maximum cap on land auction prices in October, after China's Ministry of Natural Resources released new land auction policies the previous month.

Some land plots went on sale at local record prices since the cancellation of the premium cap, Chen Wenjing, market research director at real estate research institute China Index Holdings, told Yicai. However, the turnaround of land auctions remains dependent on the degree of recovery of property sales, Chen added, noting that policy adjustment can only buoy up market sentiments to a limited extent for most cities.

Sixteen cities across China -- Chengdu, Chongqing, Hefei, Jinan, Xiamen, Nanjing, Fuzhou, Suzhou, Qingdao, Wuxi, Hangzhou, Changsha, Wuhan, Tianjin, Changchun, and Shenyang -- have announced they would lift the upper limit of the land auction price since the beginning of October, according to data from CIH.

At a land auction in Jinan, Shandong province, at the end of October, some 11 assets were auctioned. Despite the overall sentiment being mostly dull, two plots went through more than 200 rounds of bids, with the winners securing the plots at premium rates of 53 percent and 50 percent.

In early November, Hefei in Anhui province held its first land auction since the policy adjustment. The three residential plots on sale at the auction were sold at premium rates of 45 percent, 34 percent, and 7 percent. Some 11 real estate firms bid for the property sold at the highest premium, with the winner paying as much as CNY28,760 (USD3,965) per square meter, a new record high for the city's land auction market.

An employee at a Chinese property developer told Yicai that the company he works for used to actively increase its land reserves in second-tier cities but shifted its focus to first-tier cities this year because it still has many undeveloped plots in second-tier cities. In addition, some land plots on auction in second-tier cities are not profitable for developers, even if purchased at the starting price.

No matter how land auction rules are adjusted, our land acquisition plan is undoubtedly shrinking, the staffer added. Real estate developers still bidding for land in second-tier cities are mainly state-owned enterprises, he said, noting that now is quite different from the situation in 2016, when property developers of various ownerships were fighting for land.

After lifting the land price ceiling, the market expects cities to gradually ease restrictions on new home sales prices, which may stimulate developers' enthusiasm for land acquisition.

The land market might become slightly more active if restrictions on new home sales prices are eased or lifted, a former employee at the investment department of a large Chinese real estate company told Yicai. However, the memory of the losses suffered after the craze for land in 2016 is still fresh in property developers’ memory, they noted.

"Developers who got land plots at record prices in 2016 may still lose billions of Chinese yuan -- equals to hundreds of millions of US dollars -- even if they sell all the properties they developed on those plots,” the above ex-employee added. "No one wants to gamble again after that lesson."

Moreover, real estate companies are still in financial difficulties, which also limit their ability to participate in land auctions, the real estate staffer pointed out. "Whether we can buy land plots with less hesitation next year depends on whether we can get new financing around the Spring Festival holiday, which is in early February."

The total financing amount of real estate enterprises halved in October from a year earlier, hitting a new low since 2020, according to real estate data research institute CRIC Research Center.

Editors: Tang Shihua, Futura Costaglione