A residential property project under construction in Guangzhou. [China Daily]

Easy bank credit and capital relaxation rules have triggered a land rush in major cities even before the full recovery of the property market.

Some of the mainland's largest real-estate developers, including China Resources Land Company Ltd, Poly Real Estate Group and Beijing Jinyu Group Co, are building up their respective war chests as bidding for choice development land in cities and townships heats up.

Figures compiled by the official Shanghai Securities News showed that the 10 largest property developers have raised a combined 52 billon yuan in April and May this year through various funding channels, including bank loans, sale of new shares and corporate bond issues.

China Vanke Co, the nation's biggest listed property developer, which is known for its prudent risk management strategy, recently spent 2 billion yuan for acquiring land in two second-tier cities, Wuxi in Jiangsu province and Foshan in Guangdong.

It won a fierce contest against many other developers for the land in Foshan at a 50 percent premium on the offer price, indicating the intensity of the bidding.

To be sure, real estate developers are always keeping a close watch on available bargains either for long-term development purposes or short-term resale gains.

But analysts aver that the current buying spree is largely a move by major developers to replenish their land banks. Real-estate speculators are largely absent this time, they said.

"This round of land purchases is different from the frenzy some years back," said Wang Chen, senior manager in Beijing with global real estate consulting services provider DTZ.

"It is the large-scale developers who are now buying the land for development. Earlier, there were many small developers and speculators who used to purchase land for speculation purposes," Wang said.

The loose monetary policy adopted by the government to help stimulate economic growth has also helped and so the lowering of the minimum capital requirement for each building project.

The State Council, or the cabinet, announced on May 27 that the minimum capital requirements for starting a new commercial property or an affordable housing project was reduced to 20 percent of total cost from 35 percent.

Many private equity (PE) firms have also jumped onto the real-estate bandwagon, as they believe the sector have adjusted to reasonable levels and offering value for investment.

According to market researcher Zero2IPO, real estate projects were the most invested business by PE funds in the first quarter, with US$224 million capital being raised, accounting for 47.6 percent of total PE investment in that period.

In addition, the recovering capital markets also offered more fund raising channels for these bottom-fishers.

Beijing Jinyu Group Co, which has commercial land deposits of around 96-hectares, recently announced that it was planning to list on the Hong Kong bourse.

The company plans to raise about $500 million, and industry analysts predicted it might start a new IPO wave in the industry.

The worries on inflation, low interest rate, relaxed lending policy and various fund raising channels have all contributed to the land buying frenzy.

"The huge capital expenditure on land resource will put pressure on most of the companies in the coming two years. If the real estate industry does not bottom out in the second half, companies will be stuck with large land resources but limited fund raising channels and hence strapped for cash," said Chang Haizhong, analyst, China Chengxin International Credit Rating Co.

"So, we remain very cautious on the ratings of the real estate developers, especially for private companies," Chang said.

(China Daily June 11, 2009)