No Stimulus is Coming! Second-Tier Land Boom Triggers Govt Warning

Back in January I posted No Monetary Stimulus Coming: China's Housing Trap. There were articles downplaying the housing market because animal spirits were picking up along with stimulus expectations.
The common theme is no, housing isn't going to be revived by the RRR cut. However, the bigger story is why these articles are being published. Chinese expect monetary stimulus will save housing. If at any time China decides to pump money into the economy, all levels of Chinese society are going to pour capital into the housing market. Exactly what the Chinese government doesn't want.
China would create new credit to the tune of 5 percent of GDP in January, and signs of housing recovery in various markets showed up. There was a steady narrative shift from "this won't boost housing" to "the pickup in housing is temporary." Now the government has issued a warning on second-tier land prices.

New credit creation will find its way into the real estate market. An article in 21st Century: 房地产信托一枝独秀 前四月“输血”房企近3000亿, Sogou: Real estate trust outshines others "blood transfusion" housing enterprises nearly 300 billion in April, indicates trusts are funneling cash into the market. The Chinese government has many tools to stop capital from flowing into real estate, but they can't cut it off entirely.

iFeng: 二线城市土地成交火爆引发政策预警
Sogou translation: Second-tier Cities' Land Transaction Boom Triggers Policy Warning
ecently, the heat in the land market in hot cities, especially in second-tier cities, has obviously picked up, with fierce competition on the spot, and the phenomenon of dozens of housing enterprises seizing land, hundreds of rounds of bidding, and premium rates exceeding 100% has reappeared. The pick-up in land transactions in second-tier cities has led to a pick-up in the national land market. According to data from the China Index Research Institute, the Securities Times reporter estimated that in April, land sales in second-tier cities accounted for nearly 70% of the total land sales in 300 cities across the country.

Industry insiders believe that the rebound in the land market is mainly due to a combination of factors such as a strong desire for replenishment due to a moderate short-term expectation after a certain period of adjustment, sufficient funds for housing enterprises, a reduction in the size of land supply, and the focus of housing enterprises on second-tier cities. After the central government insists on the fixed position of "no speculation in housing" and gives early warning to cities where land prices are rising rapidly, it is expected that the current round of land market growth will not last long, the market contains risks, and the investment layout of housing enterprises still needs to be cautious.

Land auctions on fire.

Originating from the replenishment of inventory by housing enterprises

On April 30, on the last working day before the "May Day" long holiday, 7 residential sites were sold in Nanjing for a total of 7.21 billion yuan, with premium rates of about 40%. From April 25 to 26, Hefei closed 25 parcels of land for two consecutive days, with total land sales revenue exceeding 21 billion yuan. On April 24, five residential sites were sold in Suzhou's main urban area, earning 13.57 billion yuan. On April 23, Wuhan clinched a deal for 10 parcels of land and won 22.8 billion yuan.

Recently, the enthusiasm of housing enterprises for land acquisition in hot second-tier cities has increased significantly, and the market heat has picked up significantly. The rebound in land transactions in these second-tier cities has also driven the national market to heat up. From April 22 to April 28, the turnover of land in 40 major cities monitored by the Middle School increased 64% month-on-month and the total amount of leasing increased 130% month-on-month. Among them, the second-tier cities have seen their prices rise. In April, the total amount of land leasing in 300 cities nationwide was 334.6 billion yuan, up 17% from the previous month and 24% from the previous year. Among them, residential land transactions in second-tier cities are active, with a total of 223.1 billion yuan of land transfer fees. Based on this calculation, the second-tier cities' land sales revenue accounted for nearly 70% of the country's 300 cities' land sales revenue. In addition, in the TOP20 of land leasing fees, second-tier cities occupy 15 seats on the list, with Wuhan leading the way with 40.9 billion yuan, followed by Hangzhou with 30.41 billion yuan and Suzhou with 15.63 billion yuan.

As for the reason why the land market in second-tier cities has picked up in recent days, Yang Hongxu, vice-president of Shanghai Yi Ju Real Estate Research Institute, said in an interview with a reporter from the Securities Times that the first reason is that developers started to issue large amounts of bonds in October last year, raising more funds and getting land when they have money. The second reason is that the regional distribution of investment by development enterprises is the same. Large and medium-sized development enterprises prefer the first and second tier cities to avoid the third and fourth tier cities. The third reason is that the real estate market has had a "spring festival" this year. The volume of transactions in most cities has increased, the prices of houses in some cities have increased, and the recovery in real estate sales has also made development enterprises feel that it is a good time to seize land at present.

Judging from the newly added value of housing enterprises from January to April, housing enterprises increased their investment in April, and second-tier cities are still the main battlefields. Statistics from the Kerri Research Center show that in April, China Shipping, Green City, Shimao and China Resources and other real estate enterprises significantly improved their land acquisition rate, with the amount of land acquired increasing by more than 200% compared with the average in the previous March. At the same time, driven by the strategy of returning to the second-tier cities, the housing enterprises' land acquisition in the second-tier cities continues to rise and the competition becomes more intense. From January to April, 49% of the second-tier cities of the top 100 housing enterprises were newly built, up 3 percentage points from January to March. The proportion of third-and fourth-tier cities is 45%, down 13 percentage points from last year.

Land prices are rising rapidly.

Triggering Policy Warning

It is worth noting that policy warnings have appeared after the rapid rise of land prices in some cities.

When the Ministry of Housing and Construction conducted a special survey of the real estate market in the first quarter, it pointed out that residential sales in some hot cities have picked up and the heat in the land market has picked up, which requires high attention. It has also given early warning to cities with large fluctuations in house prices and land prices. On April 17, the Ministry of Natural Resources re-emphasized the "five categories" of regulation targets for residential land supply. Among them, the digestion cycle is 12 to 6 months, to increase the supply of land; For those less than 6 months, the supply of land should be significantly increased and accelerated. Before that, Hefei, where the land auction market was overheated, also lowered the ceiling price for residential land in hot spots.

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