26 April 2019

POLICY WATCH: Beijing urges local govt to avert ‘land king’

Beijing has unveiled a set of guidelines for local governments to avoid the creation of a new “land king”, or a plot of land sold at a record-high price. However, local authorities have a strong incentive to drive up land prices, which is to generate income to repay their mounting debt.

Land prices are expected to continue to soar in the last quarter of this year, a traditional peak season for property sales. And it remains unclear whether Beijing will adopt tougher measures if land prices continue to break record highs. That could put some downside risk on property developers in the coming months.

Putting a lid on fast-growing land prices is a government priority, Hu Cunzhi {胡存智}, deputy minister of the Ministry of Land and Resources, China’s land regulator, said in a conference on Sept. 26. Hu noted that recent land auctions in many cities hit record prices, and that some local governments sell prime location sites because of debt pressures.

To cool down the red-hot property sector, more land should be allocated for residential use in the coming months. Cities are also requested to submit land supply targets to the ministry so that an adequate number of homes can be built.

China’s biggest cities, especially Beijing, Shanghai, Guangzhou and Shenzhen, are required to ensure a sustainable land supply in line with the land supply levels of three to five years ago, Hu said.

In a strongly worded speech, Hu blamed local government officials for not fully enforcing the property restrictions outlined by top regulators. They have not recognized the importance of implementing the curbs and its implications on economic restructuring, people’s livelihood and social stability, Hu said.

This is the first time the country’s new leadership issued a clear stance on the property curbs since taking the helm in March. It remains unclear, however, if Hu’s remarks will be a prelude to more tightening measures in the sector.

Beijing’s concerns are well justified amid rocketing land prices in recent months. Municipal residential land deals, measured by area, rose 26 percent in the first eight months of the year from the same period in 2012, Bloomberg reported, citing data from China Investment Securities Co. Ltd.

On Sept. 4, a plot of residential land in the northeastern center of Beijing was sold at a record price of 73,000 yuan (US$11,921) per square meter of buildable area, the most expensive in China. Hong Kong’s largest developer Sun Hung Kai Properties earlier won an auction for a commercial district site in Shanghai for a record 21.77 billion yuan.

In China, local governments increasingly rely on revenue from land sales due to stagnant tax income amid stalling economic growth. Land sale proceeds amounted to 2.67 trillion yuan last year, representing more than half of their tax revenue, official data showed.

However, the new leadership has not rolled out any new cooling measures as they seek to control prices without hurting economic growth, which has eased to below 8 percent for five consecutive quarters. But the stakes are high. Skyrocketing land prices will push housing prices even higher, and this could lead to social unrest in the long run.

– Contact the reporter at [email protected]



Freelance journalist

EJI Weekly Newsletter

Please click here to unsubscribe