China’s land sales slumped in the first seven months of the year and have yet to recover sustainably, as many developers still prioritise liquidity preservation over land replenishment amid weak sales and impaired funding access, Fitch Ratings said in a new report.
Nationwide land transfer revenue tumbled by 42.2% year over year to 2.4 trillion yuan in the 7-month period while most provincial regions saw a retreat of more than 30% year over year, it said. The decline in year-to-date land sales eased in June and July due to a lower base, as the land market had started to cool in mid-2021.
Regional divergence remained wide among high-tier cities that use the concentrated land auction scheme. Land sales in the two northeastern cities, Shenyang and Changchun, plunged by at least 90% year over year in the period, while land sales in Hefei, Shenzhen and Chengdu rose 38%-52% due to the faster auction pace than a year earlier, according to the report.
Many cities with weak land-market sentiment have urged local government financing vehicles (LGFVs) to purchase land, often at zero premiums, to contain auction failure rates and narrow the shortfall in fiscal revenue, however such practices may not be sustainable, given most LGFVs have limited property development capacity, Fitch said.
Seventy of the top 100 developers by attributable contracted sales did not replenish land banks in the first seven months, with the rest typically slashing their land spending, according to China Real Estate Index System, according to the report.