To make up the funding gap left by shrinking land sales revenue - which exceeded $1 trillion last year - Goldman Sachs Group Inc. S&P Global Ratings warned in a recent report that depressing land sales could lead to delays in key local infrastructure projects. Municipalities are already facing revenue pressure from the flagging economy and struggling under a mountain of debts following years of investment binges. It’s also set to worsen the debt problem at local governments, which, according to E-house China Research and Development Institute, rely on land sales for about 40% their revenue. That doesn’t bode well for the world’s second-largest economy, which slowed in the third quarter as the property and construction sectors shrank. During the latest round of auctions held by local governments, three quarters of transacted parcels were sold at government-dictated base prices versus a premium of 45% before, Jefferies analysts said in a recent note, adding that the cool-down in the land market is faster than expected. Beijing and the eastern metropolis of Hangzhou, home to the headquarters of Alibaba Group Holding Ltd., didn’t find any buyers for almost 60% of land parcels put up for sale this month. That may shut down a key channel of funding for the sector, potentially prompting a wave of defaults.Īs a result, land auction failures are on the rise across China. Offshore borrowing costs for developers have soared in recent weeks as yields on Chinese high-yield dollar bonds, which are dominated by these issuers, climb to their highest in about a decade.
“Developers are hoarding cash to avoid becoming the next Evergrande,” said Larry Hu, head of China economics at Macquarie Securities Ltd. In one sign of how tight financing has become, the industry’s borrowings from banks dropped 8.4% last month, the most since 2016, according to data compiled by Bloomberg. Proceeds from land auctions across the country plunged 18% in August from a year earlier, the biggest decline in almost three years, Bloomberg calculations based on Ministry of Finance data show.įaced with weakening funding access and rising borrowing costs amid the deepening crisis at China Evergrande Group, many developers have been refraining from replenishing their land holdings. (Bloomberg) - China’s cash-strapped developers are becoming reluctant to bid for land during the nation’s property slump, threatening to undermine a $1 trillion revenue source for local governments and deepen the economic slowdown.Ībout 27% of land parcels offered by local governments went unsold in September as no developer submitted bids - the highest rate since at least 2018, according to data compiled by China Real Estate Information Corp., which tracks auctions across 128 Chinese cities.
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