Chinese Developers Wary at Land Auctions

As criticism of land grabs and forced demolitions continues, the Wall Street Journal reports that despite signs of a rebound in the property market, Chinese developers are skittish at land auctions:

A number of cities, including Shenyang, Dalian, Zhuhai and Tianjin, have seen disappointing land auctions, with many real-estate developers reluctant to add to their land holdings. That is bad news for local governments, which depend on land sales for a large slice of their revenue. Data from the Ministry of Finance show that revenue nationwide from land transfers dropped 27.1% to 1.35 trillion yuan ($212.1 billion) in the first seven months of the year compared with a year earlier.

Government officials in Shenyang, Dalian and Tianjin all declined to discuss the data. An official in Zhuhai conceded that there has been a problem selling land even at reduced prices, adding that this has squeezed government resources.

“It’s difficult to sell land now,” the official said. “The government had to scrap plans for auctions, and has had to sit tight and see how things work out.”

Some cash-rich companies like China Vanke Co., 000002.SZ -0.12% the nation’s biggest listed developer by market value, have jumped into the market, either at auction or in second-hand deals. But others are holding back, waiting for local governments to lower their prices or to see if the market is making a more solid turnaround.

Amid difficulties in auctioning off land, Beijing and local governments have produced conflicting real estate policies. From MarketWatch:

Over the past six months local governments have introduced various policies to stimulate real estate markets, which they see as a source of much-needed funds. This is in contrast to efforts by the central government, which in 2010 implemented controls to cool the market, something many fear was a dangerous bubble in the making.

Local governments pay lip service to the central governments curbs, but at the same time have made efforts to boost the market. This is a sign that they see the need to balance central government policies with finance needs.

To some degree, there are signs local governments are prevailing in this battle of wits. Housing prices in 70 out of 100 cities nationwide jumped in July, data from the China Index Academy (CIA), a property research organization in Beijing, showed.

“In 2011, it was the battle between developers and central government,” said the vice president of a large real estate company in Shanghai who declined to be named. “Now it is a fight between the central and local governments. We cannot say spring is coming, but we see hope.”

Read more about urban development in China, via CDT.

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