Developers play waiting game to buy land at the right price

SHANGHAI - Aborted attempts to bid for 121 pieces of lands in Zhejiang province in the first half of 2011 are not signs of an imminent cool-down in the real estate market, analysts said.

They said bidders withdrew from some land auctions because these sites are located in remote areas and have much higher sale price than the current market rate.

The 121 plots, with a combined area of 3.26 million square meters in Zhejiang province, failed to attract interested bidders, according to a local government funded land trading information website.

Wenzhou topped the list with 30 blocks of unsold land, totaling 1,096 mu (73 hectare).

"Three out of five deals were aborted during the first six months of this year. This is expected to continue in the second half of this year, if the restricted property policy still exists," said Yang Xiuqing, the manager of Wenzhou Huifeng Auction.

It was a different story for the same period last year: Nearly 90 percent of land auction deals were sealed.

"I think the major cause of the high frequency of abortive land bids is that the local government had priced the land too high," said Song Huiyong, research director at Shanghai Centaline Property Consultants Ltd.

"Lands are priced too high for developers to acquire, as high acquisition costs render limited returns from property development. Therefore, property developers are cautious in bidding for these lands," added Song.

Land sales are a major source of income for local governments.

Due to the restrictions on the number of properties buyers are allowed to purchase and with no signs of price easing on land provided by the government, the majority of local property developers chose to wait-and-see for better prices on land investments, Yang said.

"The minimum bid price is too high for buyers at the moment, especially as the amount of properties being sold during the past half year kept declining," said Ding Yi, a property developer in Wenzhou, Zhejiang province.

Ding added that he's paying more attention to picking the most profitable projects during auctions, instead of wasting financial resources in bidding for sites that are not certain to bring good returns.

In order to raise the value on a piece of land, many local governments will invest initial infrastructure in the area and subsequently look for land buyers. However, once the land is sold, these local governments will halt their efforts on further improvements to the area, and instead will target another land for sale.

"Land will run out one day. By that time, local governments have nothing to meet their yawning government deficit," Song said.

Apart from the imbalance between growing supply and stagnant demand for land, the different land auction procedures in downtown Hangzhou had helped to eliminate abortive land bids, said Zhang Huifang, general manager with Hangzhou Shining Property Marketing Co Ltd.

Downtown Hangzhou didn't have failed land bidding during the first six months of this year, he said.

To bid for land in auctions, real estate developers in downtown Hangzhou have to submit their planning schemes ahead of the bidding date. A final decision will be made according to various factors, which include the developers' experiences, criteria in the development project, and the bid price. Short-listed developers will get to participate in an auction to determine the final land price.

China Daily

(China Daily 07/22/2011 page14)