Lei Xiangping lagon235@163.com RECENTLY, housing market watchers have been perplexed by a strange phenomenon: Developers are buying record amounts of land despite already having a huge home inventory that might take years to sell in current market conditions. According to a recent report by China Index Academy, a nongovernmental property industry observation organization, 10 famous developers in September spent 54 billion yuan (US$8.4 billion) to purchase 3.51 million square meters of land, a surge of 236 percent and 107 percent from August, respectively. Meanwhile, national home inventories rose to a new height in the same month. Only two out of the 70 cities listed on the national housing price scrutiny network by the academy saw decreased inventories. Inventories in Nanchong City of Sichuan Province and Shenzhen grew 20.32 percent and 14.92 percent, respectively, the two highest increases out of the 70 cities. Any savvy business person wouldn’t risk purchasing new goods unless current inventory levels were low. However, domestic developers have a passion for purchasing new land lots even when they already hold many unsold houses. Their abnormal behavior has perplexed many economists. The question is what consequences will result from the developers’ adventurous actions? The answer is quite obvious — inventories will continue to accumulate risk in the property market and might start a chain reaction that will hurt the economy. Sales of new homes in the 70 cities decreased by 2.1 percent in September, which used to be a golden time for developers to harvest record-setting sales. The combination of sagging sales and developers’ rising zeal for land means that the existing imbalance is likely to worsen. In addition, some developers are spending more money bidding for land in first-tier and second-tier cities. As home prices in third-tier and fourth-tier cities continue to fall, land in the first-tier and second-tier cities has become a final battleground for developers to compete, causing land prices in these cities to continue to rise. The above-mentioned 10 developers on average spent 236 percent more money per square meter of land in September than in August. In October, Gezhouba property development company, affiliated with the State-owned Gezhouba Group, spent 5.1 billion yuan to buy a Beijing suburban land lot, so the company will have to sell the new homes for at least 75,000 yuan per square meter if it wants to make a profit. However, the price is much higher than those of existing homes in neighboring communities. After 10 years of high-speed expansion, the real estate industry is facing an ailing market. If inventories remain high, the risks will not be eliminated but will possibly lead to regional financial risks because housing development in many cities has much bearing on the fiscal health of local governments, banks and other industries. Once developers’ cash flow dries up, a vicious chain reaction may put local governments and banks at great risk. However, why didn’t the developers reduce their inventories before buying new land lots? Some local governments are encouraging developers to buy new land lots in order to increase revenue since taxes are decreasing amid slower economic growth. Some local governments are facing severe economic pressure, so the easiest way for them to increase revenue is to encourage banks to lend developers money so they can buy new lots with favorable policies. Local government policies to stimulate the real estate industry are like drinking poison to quench thirst. An oversupply of land and rising house inventories will distort the ailing housing market, and once risks are accumulated to an explosive point, the horrifying spillover effect will be around the corner. Where these crazy housing developers are heading may jeopardize the economy for some cities. Local governments should not yield to short-term thirst for revenue while ignoring the health of the economy in the long run. (The author is a News Desk editor with China Radio International.) | 