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Ban lifted to revitalize land market

THE Shanghai government has lifted its year-long ban on overseas developers using foreign currency to pay deposits at land auctions to assist an industry reeling from a crash in real estate prices and sales.

"The relaxation of rules should give a boost to the market by making it easier for more players to participate in auctions," said Cui Yanqiu, assistant general manager of Tysan Land (Shanghai) Limited, a subsidiary of Hong Kong-listed Tysan Holdings Ltd.

"We in the industry need some help at a time when global events are squeezing our ability to proceed with developments that the city of Shanghai considers important," she said.

The Shanghai Municipal Housing, Land and Resource Administration Bureau, in a recent document posted on its Website, said United States and Hong Kong dollars, euros and yen may be used along with the yuan in auctions of land designated for commercial and mixed-use development in the downtown Jing'an Temple area of the city.

"It is obvious that the government wants to revitalize the local land market," said Zhu Feng, general manager of Shanghai Chongrui Real Estate Market Research Co Ltd.

The bureau stopped accepting currencies other than the yuan at the end of 2007 in an attempt to stop overseas "hot money" from flowing into the overheated Chinese real estate market.

The restriction didn't apply to deposits on land designated for industrial development, such as warehouses, business parks and manufacturing facilities.

"The ban on foreign currency deposits proved very effective in curbing 'hot money' because it was almost impossible for overseas companies to do currency transactions with the State Administration of Foreign Exchange if they had no previous investment in the China market," said Xue Jianxiong, an analyst with E-House (China) Holdings Co, the country's largest integrated real estate service provider.

Shanghai's property market is suffering the effects of a global economic slowdown that is piercing asset bubbles like real estate worldwide. Liquidity has tightened and credit for development is harder to obtain.

The recent industry report showed 15.42 billion yuan (US$2.25 billion) was raised in Shanghai through land auctions last year, a 60-percent plunge from a year earlier, the 21st Century Business Herald reported earlier.

Across the city, 331 land plots were sold in 2008 and 24 other tracts failed to find buyers. Final results for another 80 plots haven't been disclosed yet.

That compared to the land bidding frenzy in the city between 2006 and 2007, when prices doubled or even tripled within a few months.

New Jiangwan Town in the northeastern Yangpu District was a case in point. A tract of land designated for residential development sold for 6,677 yuan a square meter in November 2006. That doubled by next June and peaked at 20,000 yuan in November 2007.

Industry analysts said prices are retreating because most real estate developers are cash-strapped.

"Developers have become more cautious now in land acquisitions as they pay attention to risks and lower their profit expectations," Chongrui's Zhu explained. "The government is seeking to lower the threshold for developers to some extent to avoid failed auctions."

A piece of land in the city's western Putuo District, designated for residential development, will soon be auctioned for the second time at a readjusted starting price, a person familiar with the issue said. The same tract had a starting price of 14,364 yuan a square meter last September and failed to find a successful bidder.

The plight of the real estate market isn't confined to Shanghai.

About 960 billion yuan was raised through land sales across the country last year, a drop of 26 percent from a year earlier, according to a report in Shanghai Securities News.

The latest report from Centaline, a leading property services provider, found only 112 plots, totaling 4.84 million square meters, were sold in January across China, a plunge of 40 percent from the monthly average in 2008. Land prices tumbled 12 percent.

Still, the new rule isn't expected to be a panacea for the industry's woes.

"This is a small step in the right direction and it has shown the government's ability to adjust to market changes," said Tysan Land's Cui, "but it won't mean an immediate bounce-back in a market beset with a lot of problems that will take time to work themselves."


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