China’s top developers plan to increase their land investments

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 $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 is 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.
China’s property market, which contributes around 15 percent of the country’s economic growth, has become increasingly unbalanced, with higher tier cities recording record prices while smaller ones struggle to reduce inventories.

Source: Arab News