Robin Kwong


Land prices in China will slide further this year as measures by Beijing to tighten lending squeeze property developers, the chairman of one of the biggest commercial property developers said yesterday.

Pan Shiyi, chairman of Soho China, said land prices had been on a “crazy” bull run last year. Some land had even fetched more at auction than developed property prices, he said. “The flour had become more expensive than the bread.”

Data from Soho China, which raised $1.7bn from its Hong Kong initial public offering last year, show that land prices in Beijing more than doubled from about Rmb2,000 per square metre in February 2007 to nearly Rmb5,000 in December.

The increase was caused by a rising property market but was also spurred by the fact that developers had a variety of financing options – from tapping the equity market to aggressive pre-selling of existing projects – in spite of bank loan restrictions imposed by central government.

Soho China used most of the money raised from its October IPO to acquire two large pieces of land.

But Mr Pan said Beijing had since taken measures, including restricting mortgage lending, amid rising inflation. That had constrained the purchasing ability of house buyers and shaken investor confidence, he said. When liquidity had dried up for developers, the market peaked.

Two land auctions in Beijing, one in December and one in January, had to be aborted because they failed to attract the minimum three bidders.

“Those [liquidity] controls will be even tighter in 2008,” Mr Pan said. “This year cash is king.”

Soho China, which said on Sunday its profits increased nearly sixfold last year to Rmb1.97bn ($277m), has a war chest of Rmb15bn in cash.

The company is in talks to buy about 1.7m sq m of land in the Beijing area.

Zhang Xin, chief executive, said falling land prices would not necessarily presage a general slump in the commercial property market, especially in central Beijing, the area Soho focuses on.

“The most important thing is that there is still too little supply, so we think property prices will continue to increase,” she said.

The Beijing market is also supported by the Rmb350bn in infrastructure spending the city is embarking on for the Olympics.


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