Friday, September 17, 2021

Chinese land auction blunder undercuts Xi’s inequality crusade

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The latest information on business and finance in China

The largest city of China, in retreat of Xi Jinping president to reduce social inequality campaign, the rules of the new central government after was not able to suppress the price, paused a land auction.

This rule is based on Xi’s “Common prosperityThe aim was to reduce demand and runaway home prices by cracking down on the high real estate costs borne by middle-class families. However, they had the opposite effect and helped drive up red real estate costs.

A rule outlined by the Ministry of Natural Resources in February stipulates that 22 cities, including Beijing and Shanghai, need to sell more land this year than they sold on average between 2016 and 2020. I did. Municipalities need to offload land in three large auctions. In 2021.

Authorities felt that the city’s previous practice of hosting dozens of auctions merely stimulated the desires of developers. Officials argued that a real estate developer missed in one auction could turn to the next auction, leading to high bids and ultimately a cascade of higher apartments. price..

Ren Yi, an influential Chinese blogger who uses the pseudonym Rabbit, said the government is increasingly concerned about “the broader socio-economic implications of rising house prices.”

In an internal note from the Financial Times, reducing the process to three auctions gives the impression of a “rich supply” at each auction, allowing the overheated local estate market to “return to normal,” the ministry said. Stated. The shift will also make it difficult for developers to raise cash to buy multiple parcels, the note added.

However, it did not work as intended and the auctions scheduled for July and August were suspended. Government advisers warned that developer behavior would not change unless the annual real estate supply was increased.

“Resources are still scarce,” said one who advised the Ministry of Natural Resources and asked him not to name him. “Developers compete for all available parcels.

“The authorities were too idealistic. They didn’t expect the power of the market to go against their will.”

In the 22 cities subject to the land sale review, average transaction prices in the first half rose to RMB 9,591 ($ 1,485) per square meter, up 38.3% from the previous year, according to local housing agency statistics. bottom. ..

The first large-scale auction was held from April to June. In Chongqing, the country’s largest city in terms of population, a subsidiary of China Merchants Group, a bank, was 130% above the asking price of a downtown parcel. The record premium paid in the city the previous year was 49 percent.

China Merchants Group executives who asked not to reveal their identities said the group was willing to pay high premiums because “we are in a cash-burning race to build a land reserve.” ..

Some cities have begun to impose caps on bids. This was decided by the lottery because so many developers are willing to pay the highest price allowed.

In April, bids for downtown Guangzhou land were 50% above the asking price. To increase the chances of winning, large developers have created a number of shell companies to offer additional tickets for the lottery. About 300 entities participated in the auction, but they represented only about 30 developers.

Local government-owned companies also participated. An executive at Yuexiu Enterprise, a leading developer managed by the Guangzhou Municipal Government, said:

At an internal meeting last month, the Ministry of Natural Resources sought to curb the surge in shell companies by stipulating that each should provide evidence of funding, according to the minutes of the meeting seen by the FT. We also instructed local governments to set their bid limits 15% higher than the asking price.

However, ministry advisers were skeptical that the latest measures would prove effective. Local governments get most of their financial income from land sales, so they may simply want to raise their asking price.

“Too often at stake,” he said. “The central government cannot be expected to control everything.”

Chinese land auction blunder undercuts Xi’s inequality crusade Source link Chinese land auction blunder undercuts Xi’s inequality crusade

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