Exorbitant land costs burden developers

Slow start, cold sales

Crazy land prices are not always followed by crazy sales. Another two costly pieces of land sold the same day as the Dongsheng plot are encountering their own difficulties, such as slow construction or cold sales.

"It is hard to say when it will go to market and harder to predict the sale price," said a saleswoman for the 4.08-billion-yuan unfinished housing project in the Wangjing area of Beijing.

Nearly two years after the bidding, only two huge pits have been dug for its foundation. And its developer, a company affiliated with real estate giant Sino-Ocean Land, has pushed the date for it to hit the market from 2011 to 2012.

The exorbitantly-priced plots are now major burdens for developers whose profit margins have been extremely compressed by declining housing prices, said Zhang, adding that, in some cases, the land price alone equals the price of newly-built apartments for sale nearby.

Meanwhile, the land for the Daxing Yizhuang residential and commercial project (X1-1B) might be the fastest mover of the three wildly expensive plots.

It was purchased by CITIC (China International Trust and Investment Corp) Real Estate for 5.24 billion yuan, a record-setting figure for a single piece of land in Beijing.

As of Nov. 30, only 89 units, or about one-quarter of the total volume, had been sold, and that income is still far from covering the cost of the land.

"Cutting the land cost and other expenses, the project is now something of a 'chicken rib' and of little interest to developers," Zhang said, adding that some real estate companies are "reaping the harvest of their own misdeeds."

Government works to cool prices

China's residential housing prices dropped for the third consecutive month in November amid government tightening efforts designed to cool the market, said a report released by the China Real Estate Index System on Dec. 1.

The average price in 10 first-tier cities, including Beijing, Shanghai and Tianjin, fell 0.36 percent month-on-month to 15,663 yuan per square meter from October to November.

The Chinese government has repeatedly pledged to continue these market curbs until housing prices reach a "reasonable" level, said Chen Liang, director of the market research department of 5i5j Real Estate Service Company in Beijing.

The only way out for the developers of these pieces of expensive land is to readjust product positioning and institute a reasonable pricing policy, Chen said.

"Dropping the housing price is a must, and will be effective in easing increasing financial pressure," he added.