A tightened credit control policy and tougher anti-land hoarding stance by the central government has already begun to bite in China's over-heated real estate market with apparent cool-off signals prevailing in land acquisition deals in major Chinese cities over the past two months.

Many land plots in both gateway cities such as Shanghai, Beijing and Guangzhou and second-tier ones including Nanjing, Hangzhou and Chengdu, had been bought at starting prices and some even failed to find buyers.

It is a sharp contrast to what happened just six months ago in many parts of the country.

"Real estate developers, not only small-sized companies but also many famous big operations, are facing the same problem - being short of capital flow as banks tighten their credit controls, a government requirement mainly aimed to prevent the country's economy from overheating," said Xue Jianxiong, head of research at Shanghai Youwin Real Estate Information Services Co.

"Besides, the state council's recent announcement to levy a 20-percent 'land idle fee,' which was not an obligatory requirement previously, has also had great impact on domestic land supply."

Over the past year, the People's Bank of China had raised its interest rates six times.

The one-year benchmark lending rate rose to 7.47 percent from 2006's 6.12 percent while the reserve requirement ratio was increased to 14.5 percent at the end of last year.

In January, the central bank further boosted the proportion of deposits that lenders must hold as reserves to 15 percent.

Meanwhile, in early January, the state council said developers would be charged a fee - equivalent to 20 percent of the land transaction price - for hoarding land plots if they leave those parcels idle for more than one year after acquisition, and those being laid aside for more than two years will be reclaimed by the government. In Shanghai, for instance, a few land pieces, in both downtown and rural areas, had been recently purchased at low prices compared with earlier records.

No competition

On January 23, Tishman Speyer Properties acquired a 267,481-square-meter piece of land in New Jiangwan Town for 6.752 billion yuan (US$932 million), and encountered no competition.

The land plot, designated for mixed purposes, including commercial, residential and office uses, and with a gross floor area (GFA) of about 900,000 square meters, was sold at its starting price - a per GFA price of 7,500 yuan per square meter.

However, records show per GFA price for land pieces in the same area was 6,677 yuan per square meter in November, 2006, 12,500 yuan per square meter last June and 20,000 yuan per square meter last November.

Though the Tishman Speyer case might be regarded as a local government's will to attract world-renowned companies to develop top-notch projects, the sharp decline of land prices could still reflect a government stance to curb the over-heated real estate market, industry insiders said. Almost at the same time, several land pieces in suburban districts including Nanhui and Jiading had all been sold at low prices, most around 5,000 yuan per square meter, a 50-percent drop from less than half a year ago, when the per GFA price for a land plot in rural Qingpu District reached more than 10,000 yuan per square meter.

Declining prices over the past two months flags a change of the previous frenzy and developers are becoming more cool-minded, industry expert Yin Bocheng said.

(Shanghai Daily February 19, 2008)