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Greater divisions appear in China's property market

(Xinhua) Updated: 2014-04-29 16:12

But the tough sell in some cities has not stopped deep-pocketed developers to snatch land at record price.

Statistics from real estate consultancy Centaline Property showed that land sales in Beijing, Shanghai, Guangzhou and Shenzhen -- China's four first-tier cities -- hit a record high of 177.4 billion yuan in the first quarter this year.

Land sales in the nation's capital rose 57 percent year on year during the January-March period. In Shanghai, that surged more than 160 percent. The most dramatic rise was found in Shenzhen, where land sales were seven times higher than in the same period a year ago.

"Demand for land remained strong in the first quarter. It is an opportunity land sale departments don't want to miss. They expect to make great deals at a time like this," said a source with the Beijing Municipal Land Reserve Center, a government entity entrusted with land transaction in the city.

Across China, land sales rose 40.3 percent to 1.08 trillion yuan in the first quarter and accounted for more than 55 percent of local government's fiscal revenue, according to the Ministry of Finance.

Why the strong momentum? Developers usually have ample cash at the beginning of a year and tend to strike land deals faster than before, hoping to build fast, sell quickly and get cash flow to stay solvent.

"The fact that developers are on a land-shopping spree suggests that they are still optimistic about margins generated from first-tier properties, otherwise they wouldn't have been so generous in buying land," said Zhang Song, a researcher with the Institute of Chinese Land Surveying and Planning.

"With the economic change of gear underway, we expect more volatility in land and housing prices as government intervention withdraws and the market takes over," Zhao said.

Analysts are divided over the future course of property prices. While the recent promotion effort by some developers to slash inventory at a lower price had some believe the dynamic rise of Chinese home prices is running out of steam, many developers are still bullish about the market, especially in first-tier cities.

A more pessimistic view holds that though housing prices in first-tier cities are still holding up quite well, it is only a matter of time for a slump to take over as authorities continue to tighten credit.

Nie Meisheng, director of the Chamber of Real Estate Developers in the All-China Federation of Industry and Commerce, said at a forum in Shanghai earlier this month that despite the continued rise of housing prices, investment, and transaction volume, albeit at a slower rate, the market will see more marked divergence across cities, regions and between developers big and small.

"Moderating sale growth is slowing down developers' cash flow, which in turn dampens investment into the property market. Once investment is down, it will take a toll on housing supply," Nie said.

Rating agency Moody's said on Monday that the weak home sales will continue into the second quarter, as a result of tight bank liquidity and weakened market sentiment.

It also added that year-on-year growth in property prices across China's 70 major cities would slow further in the next 12 months.

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