Some Chinese cities relax rules for developers to buy lands in the third round auctions this year

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Some Chinese cities including the technology hub of Shenzhen have relaxed rules for property developers to buy land in the third round of land auctions this year following the chill in the previous round of land sales.

According to the new rules laid out by the Land Planning and Natural Resources Bureau in Shenzhen, more than one developer will be allowed to bid for land at the same price, where the competition will be based on how many homes they can build under the “affordable” price category. The bureau put 11 plots on the market last week, the third round of land auctions this year.

Nanjing city, capital of east China’s Jiangsu province, lowered qualification requirements for property developers to take part in land auctions.

Suzhou, another city in Jiansu, lowered the deposit and downpayment requirements for property developers and removed land guidance prices. The deposit ratio has been lowered to 30% of the reserve price, compared to 50% in the second round of auctions, and the downpayment ratio is lowered to 50% from 60% in the previous round.

The relaxation of rules followed the chill in the second round of land auctions when 206 land parcels were withdrawn from auctions around the country since September, as restrictions on the sector’s borrowing drove cash-starved and risk-averse developers to the sidelines.

While most major cities increased land supply this year, total transactions of residential land measured by floor space in the first ten months of this year remained sluggish, accounting for less than 40% of planned full-year land supply in cities including Beijing, Zhengzhou, Ningbo, Shenzhen, Xiamen and Jinan.

“Credit environment for the real estate sector had remained tight, making it more difficult for property developers to conduct business expansion, so they have become more cautious in buying land,” said Zhang Bo, chief analyst at 58 Anjuke Real Estate Research Institute, a Shanghai-based firm.

Shenzhen’s move “is good for developers’ cash flow as they can sell affordable homes while public rental homes are only for collecting rent,” said Yan Yuejin, director of E-house China Research and Development Institute. “The change is to lure more developers to purchase lands. Many of them struggled with their liquidity and chose to sit aside last time, and we saw many land withdrawn in the second round of land auctions.”

The withdrawal of land sales represented about a third of the 700 parcels offered across 22 cities including Beijing, Shanghai, Guangzhou and Shenzhen. Land sales are major sources of receipt for local authorities, which earn up to 80 per cent of their fiscal income from renting out the right to use state property for building private homes.

Developers have been on edge ever since China stepped up its scrutiny of highly leveraged builders with the central bank’s so-called three red lines of loan caps in August 2020. That stopped the heaviest borrowers from taking on more debt, pushing the likes of China Evergrande Group – with more than $300 billion in liabilities – into deep financial quagmires as they struggled to generate cash to pay their debt.

The crisis is poised to spiral out of control, driving Evergrande, Sichuan Languang Development, Fantasia Holdings and Modern Land (China) to either miss or default on bond payments.

“More cities will see such loosening up as developers were less willing to pour big bucks into buying land while they are under deleveraging campaign,” said Yang Kan, a property analyst with Ping An Securities.