HONG KONG:
Chinese real estate developers surveyed by Reuters mostly plan to increase
their land investments in 2017 as they shrug off record prices and government
tightening measures while seeking to expand their market share.
The 10
companies contacted by phone and messaging represent half of the top 20 Chinese
developers and together have close to US$300 billion in annual sales, mainly of
apartments.
Eight of
them said they were increasing their budgets, by between 10-50 percent, and the
other two said they would sustain their spending at 2016 levels. Company
officials responding to the survey asked for anonymity, many citing corporate
quiet periods ahead of quarterly results.
The
developers are buying land in Tier 1 cities, which are Beijing, Shanghai,
Guangzhou, and Shenzhen, or in Tier 2 cities, such as Suzhou, Wuhan and Hefei,
but most are shunning smaller Tier 3 and Tier 4 cities. That could increase the
price differential between the major cities, where demand is robust and land is
in short supply, and the rest.
A sharp
run-up in prices in major cities last year raised official alarm in Beijing
about the potential for a boom and bust cycle, and led to a series of measures
at local level to reduce property speculation.
“Because of
the tightening, home sales will not be as crazy as in 2016, but it’s a good
time for us to buy more land because we sold most of the inventory last year,”
said a company official at one developer based in the southern city of
Shenzhen, where home prices are among the most expensive in China. “Developers
need to keep the growth momentum and so we need to keep buying aggressively …
The theme for this year is land investment.”
Increasing
market share helps the big players to gain more economies of scale, putting
them in a better position to control labor, materials and marketing costs.
Companies
are snatching up land amid intensifying competition that is expected to squeeze
out some of the country’s smaller players. Citi estimates China’s top 20
developers will control 45 percent of new home sales before 2020, up from 26
percent in 2016.
The plans
for more land buying contrast with expectations for a slowdown in the growth in
overall national real estate investment in 2017, compared with a 6.9 percent
rise last year. The Chinese Academy of Social Sciences forecasts China’s
property investment will rise 5.4 percent in 2017.
Increasing
competition for land in major cities will not only pose a challenge to
authorities who want to avoid property prices from soaring out of control, but
also put pressure on companies’ profit margins due to caps imposed on home
prices in some cities.
The
developer that plans to invest 50 percent more in land this year said it was
making up for failing to buy enough in the past two years.
The two
developers surveyed who said they would keep investment levels similar to 2016
said they believed land prices were already too high.