2014-08-08

Stealth Local Govt Bailout Via SOE Land Purchases

No surprise here: local governments do not want land prices to fall.

Government not serious about lower home prices, developer says
Ren Zhiqiang, chairman of Huayuan Real Estate, a state-owned developer in Beijing, told a property forum in Boao, Hainan province, on Thursday: “In all the property market tightening campaigns, we haven’t seen the government ever consider getting less money from the land market or cut taxes.

“So, they actually do not want home prices to fall. When home prices are just starting to fall, and everyone says it’s a good thing, the government lifts home purchase restrictions. Dare they undergo the downturn and not scrap the restrictions?

What government wants and what government gets are two different things. How can it keep land prices high, when developers don't want to buy and have enough land in their inventory?

On Thursday, a new “land king” (the popular term for a development site sold for a record price) emerged in Xiang An district in Xiamen, Fujian province, when Fuzhou Hai Sheung Real Estate Development, an SOE, paid 518 million yuan (HK$651 million), or 12,634 yuan per square metre, for a site there.

In Zhengzhou, Henan province, a prime residential site went to state-owned Zhengzhou Real Estate Investment on Wednesday for 524.3 million yuan, 128.6 per cent higher than the auction’s starting price of 229 million yuan. The price per square metre of 16,143 yuan is a record for the area.

A growing number of such records is being set by SOEs, according to an unnamed source quoted by China Business News.
Instead of a real estate bailout, this looks like a financial bailout of the local government, with some hope of also propping up the real estate market. The end result will be even more pain should the real estate market continue cooling.

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