China’s land purchases shrank 38% in first 7 months of 2024 amid festering property slump

China’s property developers have slowed their land grab as a slowdown in home sales continued in the industry, deterring their appetite to invest or expand their land bank.

Land purchases by mainland China’s 100 largest developers declined by 38 per cent in the first seven months of this year to a combined 430.7 billion yuan (US$59.6 billion), compared with the same period last year. The rate of decline picked up by 2.2 percentage points compared to the first half of this year, according to a report published on Thursday by the China Index Academy.

C&D Group, a state-owned developer based in the Fujian provincial city of Xiamen in southeastern China, led the pack, spending 27.9 billion yuan during the period on land acquisitions. State-owned developers dominate the property market due to easier access to funding, challenging the ability of private developers to catch up in the near future, according to analysts.

China Greentown Holdings Limited, whose largest shareholder is the state-owned China Communications Construction Group based in the Zhejiang provincial capital of Hangzhou, was the second-largest buyer, spending 22.8 billion yuan acquiring plots.

CSCEC Yipin, which builds upmarket homes and provides management services for state-owned China State Construction Engineering Corporation, ranked third with 21.3 billion yuan in land acquisitions.

“In the current environment, central state-owned enterprises (SOEs) are still more active than private players, mainly due to their smooth financing channels,” said Wang Xingping, a senior analyst at Fitch Bohua.

This is reflected in the fact that SOEs controlled by the central government accounted for over 90 per cent of real estate bonds successfully issued this year, she noted.

“In addition to their financing advantage, state-owned developers benefit from strong brand recognition, which makes them more resilient to market fluctuations during periods of significant adjustment,” said Liu Shui, corporate research director at the China Index Academy. “The market share of property sales and land acquisitions by central and state-owned enterprises is also likely going to continue to increase in the coming years.”

Data from the China Real Estate Information Corporation (CRIC) reveals that the land acquisition threshold for the nation’s top 100 developers has been reduced by 40 per cent. This move aligns with local governments’ ‘quality over quantity’ strategy in land banking, aimed at bolstering land transactions amid a market downturn.

“In light of poor home sales, property companies have raised their standards for land acquisition,” said Fitch Bohua’s Wang. “Plots in subpar locations or of lower quality are likely to result in poor sales once developed, making them more likely to fail in auctions.”

“Aside from the high transaction activity for premium plots in some hotspot cities, the overall land market remains sluggish. We believe that it will be difficult to significantly boost the land market in the short term,” she said.

Despite a slew of measures taken by Chinese authorities to support developers and shore up homebuyer sentiment, the prices of new homes declined for the 13th consecutive month in June, falling 0.7 per cent from a month ago, according to official data. June’s prices for lived-in homes also dropped 0.9 per cent from the previous month, at a slower pace compared to May’s 1 per cent.

“Whether the trend in land transactions can be reversed in the future will depend on improvements in the overall real estate market environment,” said Wang.