[photopress:property_china_land_hoarding.jpg,full,alignright]The official Shanghai Securities News has reported the China Securities Regulatory Commission (CSRC) will reject IPO applications by property firms which intend to ‘hoard’ land with the proceeds. Hoard is a bit of an emotive word and perhaps store away land for future development would sound better but hoard is shorter.
Despite other media reports, an official from the CSRC says the commission is still reviewing IPO applications by property firms. The official said, ‘The CSRC will support bids by domestic property companies to grow stronger via IPOs or backdoor listings. We will only reject those IPO applications in which the proceeds are used in land and house hoarding.’
The question is whether there is a clear distinction between legitimate landbanking operations and ‘hoarding’ and whether the commission would recognize it as a reality or a piece of PR hype being bunged out to try and confuse the issue.
It looks as though muddying the waters is not going to work.
The report added that the prohibition applies to all land purchases using IPO proceeds.
The report said future land purchases must instead be funded with property companies’ internal resources.
Matthew Kong, analyst at Fitch Ratings, summed it up when he said, ‘Property developers cannot get money from the equity market and they can’t rely on bank lending. They can now rely only on sales and pre-sales if they want to generate enough cash to extend their land bank.’
To deter developers from sitting on idle land waiting for higher prices to launch projects, the government threatened confiscation of land that stays idle for more than two years. It also intends to impose a 20% non-use fee on land that is still idle one to two years beyond a project’s stated construction start date.
Matthew Kong said, ‘This move by the CSRC shows that the government still wants to control developers’ financing, expansion and land hoarding. It also reflects the prudent economic policies of the central government.’