A majority of the building sites in 12 mainland cities that were sold at exceptionally high prices during the feverish market peak in 2007 remain idle today because the cost of the land has made it difficult for developers to turn a profit, according to a survey.
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Unprofitable sites left undeveloped in mainland cities
Sandy Li
20 August 2009
A majority of the building sites in 12 mainland cities that were sold at exceptionally high prices during the feverish market peak in 2007 remain idle today because the cost of the land has made it difficult for developers to turn a profit, according to a survey.
In a report issued yesterday, Centaline Group, which tracked land deals in 12 major cities, said four of 18 development sites that sold for exceptionally high prices at auction two years ago have been returned to local governments because sales transactions had not been completed.
Typically, a buyer must pay a deposit of at least 10 per cent and the balance later.
Work had not begun on seven of the remaining 14 sites, Centaline analyst Song Li said. Five of those sites were in Guangzhou.
In Chengdu, Wharf (Holdings) paid a record 7.24 billion yuan (HK$8.21 billion) for a mixed-use site in September 2007, which remains undeveloped. Singapore-listed Yanlord Land Group paid 1.3 billion yuan in November 2007 for a residential site in Shanghai’s suburbs on which work has yet to begin.
“Developers hoarding these pricey sites is understandable, as transaction prices for new flats in nearby areas are just slightly higher than what they had paid for the land in 2007,” said Ms Song. Beijing-based Sino-Ocean Land Holdings bought a site in Gongshu district, Hangzhou, for 2.26 billion yuan in October 2007.
Ms. Song said the land cost 15,675 yuan per square metre. New flats in the area now sell for 13,000 yuan per square metre. “The outrageous land prices will definitely jack up the development costs and make it more difficult to make money,” she said.
Although residential prices in some cities rose 20 per cent in the first half, she said the average land cost for sites bought in 2007 accounted for 38 per cent of the total investment.
“That is the highest since 2003,” she said, adding that the average land cost ranged from 23 to 26 per cent for sites sold during the past six years.
She expected more sites to be confiscated by local governments if they remain undeveloped.
The Guangzhou city government this month said Guangzhou R&F Properties, Poly Real Estate Group and Gemdale Group faced penalties for not completing four sites.
But developers rejected suggestions their sites would remain undeveloped. A spokesman for Wharf said construction at its Chengdu site would begin in the fourth quarter.
Michelle Sze, the head of investor relations at Yanlord, said it was awaiting approval to develop its site.
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