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Land price keeps increasing caused this problem. You can just imagine land price to increase 50% YoY (hypothetical number) and you will understand the situation
by NhanH 3y ago
Land price keeps increasing caused this problem. You can just imagine land price to increase 50% YoY (hypothetical number) and you will understand the situation.
Basically you can not have enough cash on hand to purchase the next piece of land for your development, but you want to always plan for the next step.
- benterix 3y agoThe first time it happens, you can call it a mistake. But second, third? Is int't it obvious that, seeing this trend, you should calculate the risk and factor in the land cost increase when pricing your offer?
- NhanH 3y agoIt's a different issue than what you are imaging. It's not that they sell the property for less than the relevant land cost, it's that the increase is too steep that they can't buy and build the next one without pre-selling the lot, the company just doesn't have enough cash.
- jjoonathan 3y agoThe magnitude of land speculation profits is not dictated by physics. If companies weren't able to pay what they did, the speculators (local governments in this case?) would live with less. Developers compete with each other, so they will always take as much leverage as allowed, but the rules are adjustable by lenders. Lenders compete too, but they usually wind up backed by a central bank or other political entity, and that's the point at which changes can actually be made. Of course, there is no guarantee these changes won't create problems (Three Red Lines were a decade too late) but they can be made.
- jjoonathan 3y agoTry doing that and someone who does take the leverage will simply outbid you for the land.