Each new month seems to be bringing a new record in Chinese property prices at the moment, even as the authorities continue to warn against overheating sentiment.
This time it was news of a land price that was drawing the attention, as China State Construction Engineering Corp set the latest record for the highest price paid for a plot of residential land. The company bought a 114,500 square metre land plot in Shanghai’s Yangpu District for Rmb3.72 billion ($540 million), or Rmb32,484 per square metre. Alas, not all publicity is good publicity. Amid complaints about accelerating home prices (see last week’s Talking Point), more attention is being paid to real estate firms and their speculative land hoarding.
For the past year property developers around the country have been buying plots of land and then doing very little except wait for land prices to rise.
In the latest report published by the Ministry of Land and Resources, over 10,000 hectares of land sold for development remains undeveloped (to put that in perspective, that’s 1.7 times the size of Manhattan).
In fact, about a third of listed mainland property developers are hoarding land, says Pan Shiyi, chairman of SOHO China. Based on the what listed property developers built in 2008, some companies could take at least 20 years to use up their land banks. A few will still be building into the next century. So while home prices continue to go up, supply of new homes is not coming through as quickly as it might.
The problem? Loose regulation. There is no strict definition of idle land, points out Xue Jianxiong, a senior analyst with E-House. Some developers dump down a few bricks or dig some ditches to comply with the rule that work must start within two years. But then they stop work.
“Such cases exist in Singapore and Hong Kong, but they have effective regulations to counter such behaviour. Developers have to pay the full price of the land within two years and all the related procedures should be completed and the plot developed,” explains Albert Lau, managing director of Savills Shanghai.
Often it pays to dawdle. In 2006 Cheung Kong purchased a piece of land in Shanghai’s Minhang district for Rmb2,667 per square metre. It is expected to charge between Rmb60,000 and 120,000 per square metre when the luxury development goes on sale next month.
The government is cracking down on the worst of the hoarders. Those who fail to start construction within a year of bidding for development rights will now face fines of up to 20% of the bid amount. If land is left idle for more than two years, it risks being repossessed, says Beijing Youth Daily.
So far 18 development projects have been singled out for attention. Two belong to Cheung Kong and Hutchison Whampoa, companies controlled by Hong Kong billionaire Li Ka-shing. The move has caught many in the industry by surprise as Li’s connections at the highest levels of government were thought to make such public censure unlikely. Others wonder if it is more a sign of Beijing’s growing panic at spiralling property prices.
Both of Li’s firms have denied any wrongdoing. Construction has been delayed, they admit. But that is largely down to a series of problems beyond their own control, including changes in urban planning rules and approval processes, as well as a lengthy wait to ensure the proper resettlement of affected residents.
Industry insiders agree that the experiences of the two Hong Kong firms are common ones. Hold-ups in construction are often more the result of having to wait for bureaucrats to take decisions.
“It is almost impossible for developers to comply with the two-year rule to start construction if the sites are earmarked for a large-scale housing project,” says Simon Hong, project development director of Hon Kwok Land Investment.
Hong told South China Morning Post that the lengthy government application procedure could take at least four to five years before construction was possible.
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