October 11,2009

China's Land Being Oversold to Hoarding Developers

By CSC staff, Shanghai

The dwindling of undeveloped urban land in China

, as well as its value as a favored asset, is pushing prices up, and cash-strapped local governments are selling it off quickly to real estate companies. Enough land for the next couple of generations of development has been sold or is now being hoarded. For real estate companies, land reserve are seen as a safeguard for their sustainable development.


In October and November, six mainland real estate firms with vast reserves of land will list on the Hong Kong market, with financing of more than HK$30 billion. After their IPOs, they will doubtless go on a buying binge with so much cash on hand.


Because the capital markets see value in greater and greater land reserves, listed companies are not only buying but desperately hoarding their purchases. Other, so far non-listed companies, would like to follow suit in their own listing preparations.


But it is not non-listed enterprises that are doing most of the hoarding, says Pan Shiyi, chairman of SOHO China, an HK-listed developer. Their limited financial resources mean they usually have to live within their means, buying lands in accordance with their sales.


After a sample analysis of annual reports of some listed companies, Pan Shiyi found that listed companies' hoarding is alarming. Based on the floor area developed by these firms in 2008, the scale of their hoarding is more than 20 years usage at least and up to 100 years, with one company's reserves reaching 151 years.

So, there is less and less of new land resources, while developers are hoarding more and more land. The State Council has been trying to crack down on the hoarding behavior, but local governments are not implementing the regulations.


Glorious Property was formally established on October 2nd in Hong Kong, and another five domestic real estate firms, Evergrande Real Estate Group, Mingfa Group, Excellence Group, Fantasia, and Xiamen Yu Zhou Group, will list on the Hong Kong market by the end of October or early November, with at least HK$30 million in financing.


Evergrande is expected to rise to No.1 this year in real estate with the largest starting fund-raising based on current assets. The company says it currently has approximately 50 million square meters of land reserves, far more than 13.6 million square meters of Glorious Property, mostly concentrated in 24 provincial capital cities.


Xu Jiayin, chairman of Evergrande, has said that the firm's sales in 2009 will grow beyond 30 billion yuan, up nearly 200% over last year. Analysts say there were as many as 32 projects, five of them brand new, for sale under Evergrande around the recent National Day Golden Week, with a total volume of more than 20 billion yuan. It is expected that 600 or 700 million yuan was sold around the holiday.


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