19 August 2019

Zero hour for big-city land supply? Not so fast

Picture this: Big cities heaving with people, nothing to build on.

That is apparently the future for urban centers with five million people or more, according to reports attributed to Land and Resources Minister Jiang Daming {姜大明}.

That will happen under a government plan to halt new land supply in these cities, the reports said.

Three predominant coastal areas — the Beijing-Tianjin economic rim, Yangtze River Delta and Pearl River Delta — got special mention.

Jiang’s remarks, made at an internal conference on Friday (no detailed measures have been actually gazetted by the ministry) have stirred up confusion across the property sector. Developers, already squeezed to the hilt under a continuing clampdown on property prices, might have heard the death knell on their business.

But on Sunday evening, the ministry issued a statement that Jiang had been quoted out of context. Yes, new land supply will stop but it will be over a period of time, not in an instant.  

Still, analysts think the plan, even from a long-term view, is draconian — a prelude to a slew of unprecedented measures to preserve arable land. Decades of breakneck land development and construction have come down to a basic question: food.

Previously, local cadres and developers were happy to build around farmland to create new towns. The approach worked because the alternative — redeveloping sites in old urban districts — took an eternity, with affected residents charging exorbitant compensation. Also, land rezoning and formation was thorny.

China Securities Journal, citing an unnamed source, reported that the government wants to ensure grain security by conserving arable land, especially amid stepped up urbanization.

China needs at least 1.8 billion acres of farmland to maintain grain security. Top leaders including former premier Wen Jiabao {溫家寶} have made it the absolute bottom line.

Analysts agree that the zero land supply policy for big cities is almost a sure thing but exactly how big they have to be is unclear. The five-million-people criterion looks arbitrary.

For instance, do migrant workers, who usually are not included in the urban household registration, count as city dwellers? If so, the number of cities with a population of five million or more could well exceed 80, implying that not only Beijing, Shanghai, Guangzhou, Shenzhen and some other key urban centers will be targeted. Numerous lower-tier cities will also fall under the category.

The impact of the policy on developers may be gradual. Many of them replenished their land banks last year, with the top 10 splashing out more than 256 billion yuan (US$42.3 billion) on land purchases, more than double the amount in the previous year, data from real estate consultancy E-House China shows.

Even in a worst-case scenario, some of these developers can build on their existing reserves for yeas to come.

Evergrande (03333.HK) has 155 million square meters of land reserve that can comfortably meet its development needs in the next seven years, China International Capital Corp. said in a report.

Country Garden (02007.HK), Agile (03383.HK), Greentown China (03900.HK), China Overseas Land & Investment (00688.HK), Shimao (00813.HK), Longfor (00960.HK) and China Resources Land (01109.HK) are sitting on 30 million to 60 million square meters.

Those with smaller reserves may have to buy land from others or tap into the government’s subsidized housing program.

Finally, local governments that rely on land sales for fiscal revenue will be forced to redraw their urban planning strategy to create more room for developers.

– Contact the writer at [email protected]



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