Idle plots further compound realty crunch in Shanghai
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Listed property developers have been cornering huge plots and often leaving them undeveloped, further compounding the land shortage in Shanghai, said a new report.
Over 330 plots earmarked for residential development are lying idle due to various reasons, said the report released by E-House (China) Holdings Ltd, a leading property service provider.
Prominent among the names in the list are biggies like Cheung Kong (Holdings) Ltd, Hutchison Whampoa Ltd, Shui On Land Ltd, Vanke and Shanghai Industrial Development Co Ltd.
What has been surprising is that realtors often ignore the regulations, even though it is mandatory to develop such plots within two years of getting approval. The rules stipulate that if the owners fail to comply with the regulations, the plot should be reclaimed and fines imposed, said Xue Jianxiong, a senior analyst with E-House.
Vanke did not develop its Binjiang plot in Pudong district as the local government has changed the planning for the area. The company postponed development of another plot in Qibao Town in Minhang district citing relocation problems, said an analyst on condition of anonymity.
In addition, there are many other loopholes in the existing regulations that developers take advantage of, the analyst said.
"There is no strict definition of what is developed or idle land," he said, adding some developers just dig holes in the land to show that it is under development.
One of the main reasons behind the idle land is the soaring value. Cheung Kong purchased a piece of land in Maqiao of Minhang district for 2,667 yuan ($390.62) per sq m in terms of gross floor area in 2006. The developer is expected to start the pre-sales of high-end villas after the Lunar New Year, and intends to charge between 60,000 yuan and 120,000 yuan per sq m.
"As the land shortage continues and may even worsen, developers will take more time to launch projects," said the analyst.
According to Xue, land is the prime asset for listed companies, and abundant land reserves would bolster their share performance.
Soaring property prices and explosive transaction volumes saw many major developers increasing their land reserves last year.
The latest record was set by a site in Yangpu district, which was sold to China State Construction Property Co Ltd for 3.72 billion yuan at a floor price of 32,484 yuan per sq m.
According to the E-House report, the 330 idle plots alone can generate nearly 43.57 million sq m of gross floor area, twice the volume of the housing supply in the city during 2008.
The key reason behind the idle land is the mild punishment, according to Albert Lau, managing director with Savills Shanghai.
"Such cases exist in Singapore and Hong Kong, but they have effective regulations to counter such behavior. Developers have to pay the full price of the land within two months, and all the related procedures should be completed and the plot developed within two years," Lau said.
In an effort to dissuade developers, the housing regulator has increased the cost of keeping land idle. The new regulations stipulate that the initial down payment for land purchase should not be lower than 50 percent of the total cost, and the entire amount has to be paid within a year.
"Such policies would help prevent land hoarding to some extent," said Hingyin Lee, director of research and advisory at Colliers International.
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