Land price surge to raise margin pressures for developers: report

The rapid rise in land prices in recent months will increase margin pressures and business risks for Chinese property developers, global rating agency Moody's said.

"The high-priced land purchases by developers in recent months have highlighted the rapid rise in land costs in major cities against a backdrop of intense competition," Dylan Yeo, a Moody's analyst, said in a report released Tuesday.

Rising land costs will raise developers' capital requirements and add margin pressures over the next 12 to 24 months, and those who acquired land at high unit costs will face increased business risks, Yeo said.

For the fifth consecutive month, all four first-tier cities -- Beijing, Guangzhou, Shanghai and Shenzhen -- posted double-digit year-on-year price growth with surging home sales in May.

Encouraged by the warming market, Chinese property developers rushed to purchase land, which drove land prices in first- and some second-tier cities through the roof.

However, Moody's predicted home sales growth nationwide has peaked and will likely slow down soon.

"The growth will moderate to a single-digit percentage for the twelve months ending May 2017, while the rise in property prices -- which has been strong so far -- will also likely show signs of slowing in some first-tier cities," according to the report.

China's property sector continued to recover but at a slower pace in May, with fewer cities reporting month-on-month rises in new home prices, an official survey showed.

The report predicted regulatory measures will remain broadly supportive where inventory risks are still high, but further tightening will be implemented in large cities with rapid price growth.

China's housing market started to recover in the second half of 2015 after cooling for more than a year, boosted by government support, including interest rate cuts and lower deposit requirements. Endi