(Bloomberg) -- Signs that China's attempts to cool its red-hot property market are working are hard to find in the official data: housing prices rose the most in 21 months in June, and as soon as authorities squelch one buying frenzy another pops up.
Scratch below the surface though, and something interesting emerges -- land is going unsold in some of the nation's most-crowded cities as the government's deleveraging campaign and a relentless flow of property curbs squeeze developers' profit margins.
A total of 419 land sites went unsold in the first seven months of 2018, up 78 percent from a year earlier, data compiled by China Real Estate Information Corp. show. A slowdown in land acquisitions preceded the past two housing downturns, and the surge in failed sales suggests the pattern may be repeating.
“The series of failed land auctions shows that the home market is already in a correction,” said Zhang Hongwei, a research director at Tospur Real Estate Consulting Co. “Developers will face increasingly harder times ahead, becoming forced to take a steeper cut in prices.”
Three suburban plots in Guangzhou attracted no bids at six separate auctions this year, even as the asking price was continually cut. In Shanghai, a small site close to the city center drew no offers earlier this month. Land has also gone unsold in Hangzhou, Suzhou and Hefei, all considered popular markets due to a scarcity of space.
Average land prices fell in July for the first time in 27 months, declining 2.6 percent from a year earlier, according to Bloomberg calculations based on official data released Tuesday.
“Sometimes companies don't have enough funds,” Liu Wei, executive vice president at developer China Merchants Shekou Industrial Zone Holdings Co., said in an interview earlier this month. “Sometimes, under the pricing curbs, you just give up after doing the math.”
Signs cash-strapped developers are easing up on land acquisitions may be welcomed by the government after property prices took off again in recent months, defying the latest curbs.
New home sales soared 25 percent by value last month, the biggest gain in 13 months, the data released Tuesday showed.
To contact Bloomberg News staff for this story: Emma Dong in Shanghai at edong10@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Peter Vercoe
©2018 Bloomberg L.P.
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