Land Acquisition Costs in China Surge Four-fold within a Decade

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New data points to a surge in Chinese land prices since 2007, driven by as well as serving to drive gains in housing prices.

Figures compiled by China Times indicate that during the period from 2007 to 2016 the nationwide land supply area fell by 50%, while land acquisition costs posted a near four-fold increase.

Data from China’s National Bureau of Statistics indicates that in 2008 the area of land for development hit a near decade-long high of 481.6107 million square metres, only to fall in 2009 before subsequently rising again.

The land acquisition area tapped a high point of 443.2744 million square metres in 2011, however, after which point it subsequently fell to 220.2525 million square metres in 2016, or under 50% of the peak volume.

In sharp contrast annual land acquisition costs have continually risen over the past decade, from 487.325 billion yuan in 2007 to 1.877868 trillion yuan by 2016, for a 3.85 fold increase.

2017 saw a year-on-year decline in land acquisition costs, however, to 1.3644 trillion yuan.

The past several years have seen strenuous efforts by the Chinese government to ensure that “homes are used for occupation, not speculation,” culminating in the launch of real market control policies by municipal governments around the country.

Analysts point out, however, that local governments are dependent upon land transfers for revenue, while land prices themselves receive a boost from higher housing prices as well as boost them, serving to create a “death cycle.”

“The secret to the rise and fall of Chinese housing prices is that they obey the market laws of supply and demand relations,” said Xie Yifeng (谢逸枫), head of the China Urban Real Estate Research Institute (中国城市房地产研究院).

“When supply is great prices fall, when supply is scarce prices rise.”

According to Xie the root cause of the rise in China’s housing prices over the past 16 years is the implementation of the “Two Rights One System” (两权一制) with regard to land, which controls both land supply and land prices.

“The land tender, auction and registration system is a weapon for controlling land and prices,” said Xie. “The divided tax system has become the key reason why local governments are dependent upon land for fiscal revenues.

“What this means is that rises in housing prices lie in government control of land supply and land prices, directly determining supply and demand relations, while lending and interest rates are indirect factors affecting supply and demand relations.”

Data from Centaline Property also points to a leap in urban land transfer sums since the start of 2018.

For 50 major cities monitored during the period from January – May the total land transfer sum was 1.5 trillion yuan, for an increase of 57.6% compared to the amount of 950.3 billion yuan for the same period last year.

For the month of May alone the land transfer sum hit 313 billion yuan, for a year-on-year rise of 111.5%.

According to analysts the surge in land transaction sums is the result of real estate developers scrambling for land, which is in turn driven by rising home prices.

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