CHINESE property developers wary of poor sales amid the country’s industry downturn are giving expensive government land auctions the cold shoulder, with plots in the capital going unsold for the first time since April 2011.

    The poor reception highlights the persistent mismatch in price expectations between developers and local governments. Cash-tight developers are seeking lower prices while local authorities are refusing to budge because land sales account for the bulk of their revenues.

    On Monday, of the four lots sold by the Beijing government, two went to State-backed Greenland Group at the reserve price. The rest were sold to local developers at lower-than-expected prices.

    Last week, of the five Beijing lots put on auction, two that had their reserve price set near the city’s record high received no bids, the first time that has happened in more than three years, according to local media.

    China’s real estate industry has been correcting since late last year as the Central Government takes steps to cool the overheated market. Official data show new-home prices fell in June from May for a second straight month, with analysts forecasting further declines.

    The situation contrasts with that last year when developers were willing to pay whatever it took to secure land. During the peak years in 2009 and 2013, such so-called “land kings” grabbed headlines with their aggressive bids.

    Market observers said that as property sales slow and the credit market tightens, many developers, in particular small and medium-sized ones, have little cash to buy land, especially in top-tier cities where prices are set with a high premium.

    Beijing-based Longfor Properties told an earnings briefing Monday that it “would rather miss the buying opportunity than buy wrong,” adding that it has slowed land purchases and new project starts since 2013.

    Commenting on land prices, chief executive officer Shao Mingxiao said: “Supply in many Chinese cities is at a saturation level, so I don’t see property prices rising significantly. However, land prices did not fall accordingly. Many local governments did not change their attitudes at all; that’s why we saw the failed auction in Beijing recently.”

    With land prices set by local governments stuck at lofty levels, sales have fallen.

    Government land sales in value terms slumped 40 percent in Beijing last month from a year earlier, data by research company China Real Estate Information Corp. (CRIC) shows. Shanghai’s sales dropped 27 percent.

    The total value of land sold by local governments in 100 cities last month fell 51 percent from a year earlier, according to CRIC, a wholly owned subsidiary of E-House China.

    Supply of residential housing has risen on the other hand.

    CRIC data released Monday showed new-home inventory levels in Beijing increased 30 percent in July from a year earlier. The research company said it would take more than 21 months to clean up the inventory.

    The impact of the ongoing property slowdown has also spread to the services sector, with property-related businesses such as real estate agencies and residential services getting hit.

    A private sector survey showed Tuesday the growth in China’s services sector slowed sharply in July to its lowest level in nearly nine years.

    (SD-Agencies)