Deutsche Bank Says Land Sales Slowdown Only Started Hitting in Q4; Bifurcation Strikes Again

This whole post is well worth reading.
“China’s fiscal slide” less fun than it sounds

The growth of land sale revenue collected by the government on a national basis remained positive at 16.6% for Q1-Q3 of 2014, but dropped on a quarterly basis from 40% yoy in Q1 to 0% in Q3 (Figure 5).

There is a common misperception that land revenue has already dropped sharply in 2014. The market appears well aware of the slowdown of property sales and land auctions in 2014. It likely overlooked the lag between land auctions cooling off and the decline of fiscal revenue. The reality is, land market started to cool down sharply in March 2014, but land sale from a fiscal revenue perspective in yoy terms remained positive until Q3 2014. We believe the fiscal shock to local government revenue only started in Q4. The full impact will likely be seen in H1 2015.

A sensitivity analysis shows our forecast for government revenue largely depends on our assumption for land sales (Figure 6). Our baseline case assumes land sale revenue to drop by 20% yoy in 2015. If land sale revenue drops by 10% in 2015, local government revenue would grow around 2.2%, still the lowest rate since 1983, except for the tax reform year of 1994…

Note that DB is using an aggregate growth figure. Land sales in first-tier cities have stayed strong: Fengtai plot sets land price record for Beijing

A consortium including China Resources won a large residential site in central Beijing’s Fengtai district on Wednesday for 8.625 billion yuan (HK$10.8 billion), making it the most expensive plot in the capital.

The record was previously held by a commercial-residential site in Beijing’s central Hua Jia Hutong that was sold to Beijing Huarong for 7.46 billion yuan in August.

Yesterday’s price tag, 22 per cent higher than the government’s opening price of 7.07 billion yuan, represents 20,599 yuan per square metre.

In this article from iFeng:北京新总价地王诞生 万科：京房价进6万时代, a the Vanke Beijing President said:

In Beijing Land Bureau, Beijing Vanke president told the media that, since July 2012 to date, Beijing publicly sell the land, the floor price of more than 25,000 yuan level there are more than 60 blocks of land as much as nearly 30 Super fast unit price 30,000 yuan. "Most of these high-priced to the market yet, plus taxes, interest, etc., the cost of these plots have increased nearly 20 percent more than than looks." Mao Daqing said the terms of the second quarter of 2015, the market began to count, Beijing will mark Nearly 70 more projects, a total of nearly a hundred times the opening price will be 50000-70000 yuan and above, and these plots outside the rings or more. According to Mao Daqing analysis, from 2015 onwards, Beijing property market in general commodity prices will enter the era of sixty thousand yuan.

And finally from late December: Land sales surge in first-tier cities

So when DB says land sale growth is 0% in Q3, the truth is that for many third- and fourth-tier cities, land sales have gone negative and some cities had zero sales, or negative 100% growth. They will have no cash from land sales coming in.

As I argued in May, low land prices are a Threat to China's Development Model.