Increase In Chinese Land Premiums Surprises China Developers

FILE PHOTO - A large screen on a building shows a propaganda image of the Chinese People's Liberation Army (PLA) on a heavily polluted day in Beijing, China December 26, 2015. To match Special Report CHINA-ARMY/NAVY REUTERS/Kim Kyung-Hoon/File Photo (Photo: CHINA-ARMY/NAVY REUTERS/Kim Kyung-Hoon/File Photo)

Premiums for land in China rebounded sharply in the first three months of the year following the ease of credit conditions and purchase requirements. Some of the forms were surprised while others prompted caution from others on the pick-up in prices.

In the second half of last year, many land auctions were unable to secure bids or the reserve price for the land due to tighter conditions and profit margin thinning experienced by the developers caused by the prolonged campaign of the government to top the property prices and the slowdown in the global economy.

The property researcher CRIC reported that the premiums that land buyers are willing to pay over the bids increased to 19.1 percent on average during the first three months of the year. In 2018, the average premium is at its lowest level in some years at 9.4 percent. Data showed that second-tier cities contributed bigger in the 2019 gains. Premiums in eastern Hefei and south-western Chongqing are at 86 percent and 25 percent, respectively.

Signs that developers are attracted to purchase land are shown in the increasing number of bids in some auctions. Xie Yangchun, a CRIC researcher said that Q1 land prices in some cities, including Chongqing and Zhengzhou, in east-central China, have already surpassed the market peak in 2016.

In 2-16, prices of houses reached the highest record which caused the government to impose tightening measures. Mr.Xie said that these cities have large land supply and high inventory risks, developers should be more careful when they acquire land at a high premium there. CRIC said that land parcels in second-tier cities which failed for purchase at auction in 2018 were placed back in the market during the first quarter and their prices are higher than the bid price last year.

The Chinese government continued imposing price caps on houses in some cities which placed more pressure on profit margins. However, the country imposed lesser credit conditions which contributed to the rebound in prices in the first quarter. The government implemented cuts on the amount of cash that banks must keep in reserve five times since 2018 to attract more lending.

In the first quarter, property investment in China increased by 11.8 percent compared to its record in 2018. However, the value of the land on the period is lower by 27 percent in 018.

James Hui, president of Shimao Property, the 11th-largest in China, said that after Chinese New Year in early February, the market was very hot, especially the land market, which surprised them.

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