Shrink­ing land sales cast fi­nan­cial shadow on lo­cal govts

China Daily (Canada) - - FRONT PAGE - By ZHENG YANGPENG zhengyang­peng@ chi­

Lo­cal gov­ern­ments sold much less land for real es­tate devel­op­ment last year as the prop­erty sec­tor hit a rough patch, cast­ing a shadow over their fi­nan­cial con­di­tion.

New home con­struc­tion used151,000hectares of land in 2014, plum­met­ing 25.5 per­cent from a year ear­lier, the Min­istry of Land and Re­sources said in a re­port.

Ear­lier data re­leased by the min­istry showed land sales rev­enue still grew by 3.2 per­cent, but it was a sharp decline from the 44.6 per­cent rise in rev­enues gen­er­ated the pre­vi­ous year dur­ing a boom in the prop­erty mar­ket.

The growth in rev­enue for a shrink­ing land area sug­gests land prices na­tion­wide in­creased last year. Of­fi­cial data did not­show­prices in spe­cific ar­eas, but pri­vate re­searcher China In­dex Academy found that land prices in first-tier cities soared 41 per­cent, while sec­ond-tier cities reg­is­tered a slump of 4 per­cent and in third-tier cities it fell 2 per­cent.

The con­trac­tion in land sales is par­tic­u­larly painful for gov­ern­ments in smaller cities and hin­ter­land re­gions where gov­ern­ments found it in­creas­ingly dif­fi­cult to sell land to de­vel­op­ers who fear over­sup­ply in those mar­kets.

“Lo­cal gov­ern­ments in small cities have sold mas­sive vol­umes of land. They pre­fer build­ing a new city in­stead of re­de­vel­op­ing old ur­ban ar­eas, which is much more costly,” said Huang Yu, vice-pres­i­dent of the academy.

Com­pared with the same pe­riod last year, newhome prices in Jan­uary de­clined in 64 cities among the 70 cities sur­veyed by the Na­tional Bureau of Statis­tics, which trans­lates into a 5.1 per­cent year-on-year decline, ac­cord­ing to Bloomberg cal­cu­la­tions.

The stall in hous­ing prices is strength­en­ing the case for mon­e­tary eas­ing, ac­cord­ing to an­a­lysts. They said pol­i­cy­mak­ers will soon roll out a slew of stim­u­lus poli­cies — not nec­es­sar­ily tar­get­ing the prop­erty mar­ket ex­clu­sively but in ef­fect pro­vid­ing a boost to the mar­ket, which in­clude an in­ter­est rate cut and lower bank re­serve ra­tio re­quire­ments.

TomOr­lik, a Bloomberg an­a­lyst, said fall­ing land sales, new con­struc­tion and prices re­flect the limited im­pact of pol­icy changes on the cost of credit. Av­er­age rates for mort­gage loans were 6.25 per­cent at the end of 2014, only frac­tion­ally down from 6.54 per­cent at the be­gin­ning of the year.

“That re­in­forces our view that a sec­ond rate cut is on the way,” he said.

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