2012-06-29

China real estate market paradox: home sales rising as developers dump land

China's end market for housing has been picking up of late, a large factor being the effect, perhaps mainly psychological, of the PBOC's rate cut. However, developers continue to struggle financially and two Zhejiang developers have returned land to the government. Rongan Property (000517) and a real estate subsidiary of Languang (000981) have returned land in Ningbo and Zhoushan, respectively.

In Ningbo, the land in question originally sold for ¥90,000 per mu in 2009, only to later see its secondary market price increase well over 100 fold, to ¥15,600,000 per mu. A dispute with farmers delayed development for a year and Rongan cannot afford to sit on the land any further, with new regulations increasing the costs for holding idle land.

The story is similar with Languang's subsidiary. A third firm has quit the real estate business entirely: Zhejiang HSD Industrial (600687). Shares of the firm were suspended since April, but in the past three trading days (including today), shares jumped the 10% limit as the firm revealed plans to sell assets.

The apparent paradox referenced in the headline is not a paradox at all. End market demand for homes are seeing a bounce, but the financial stress on developers continues to grow. Eventually, the higher and lower stages of production will converge and it is always the higher stages that lead the lower stages. In sum, the outlook for China's real estate market remains bearish.

Referenced articles:
楼市回暖悖论:浙江10天爆两起退地事件
刚泰控股股价异动 连续两日涨停

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