Mainland developers pay price for land acquisitions
After shelling out heavy premiums on mainland sites in recent months, property firms may face profit squeeze amid the cooling measures
Developers may have left themselves very little room for profits by paying high prices for sites on the mainland in recent months, say analysts.
"It's 2009 and 2010 all over again," said Lee Wee Liat, the head of property research at BNP Paribas Securities (Asia).
In those two years, developers acquired land aggressively, paying heavy premiums in anticipation of high appreciation. As a result, many sites in top cities exchanged hands at record prices.
"Developers' net profit margin on some of those projects ranged between 11 and 13 per cent, compared with the standard 18 to 20 per cent," Lee said, adding that the margin on some projects in second-tier cities such as Chengdu might have been less than 10 per cent.
Based on the acquisition cost at the time, property prices would have to rise 20 per cent a year for developers to achieve the standard margin.
As the luxury market was hit hard by the cooling measures in 2010, many developers that bought sites at peak prices were forced to postpone selling their projects to avoid losses.
CSC Land bought a luxury site in Shanghai for 32,484 yuan (HK$41,130) per square metre in late 2009. The going rate of nearby projects was about 25,000 yuan per square metre at the time. CSC pushed back the pre-sale to the second half of 2011. According to data from NetEast Property, the Grand Mansion project has sold 162 units only, with no takers for the other 253.