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Unsold land in China signals developer uncertainty

For the first time in three years lands plots up for auction in Beijing went unsold last week, signaling that developers are nervous about ongoing weakness in the country's property market.

Two of the five lots put up for sale by the Beijing government last week received no bids – for the first time since April 2011, according to Chinese media reports. In another auction on Monday, two of four lots were sold to developers at lower-than-expected prices.

According to Ryan Huang, strategist at IG's Singapore office, the unsold auctions suggest "a mismatch between what increasingly cautious developers are willing to pay versus what local governments want."

Read MoreIs China property done dirt cheap?

Local governments in China rely on land sales for the bulk of their revenue and are unwilling to budge on high prices, but developers are seeking lower prices as they have become less cash rich due to recent price declines and a tightening credit market.

And Huang said he didn't see this trend letting up anytime soon.

Read MoreWhy China property isn't facing Armageddon

"We're likely to see the relatively muted appetite by property developers continue, as investors get increasingly concerned over a property slump and take a wait-and-see attitude," added Huang.

Du Jinsong, head of Asia Property Research at Credit Suisse, told CNBC the unsold auctions were result of local government's misjudging the market.

"Developers have adjusted their expectations on future housing prices already, given the housing market weakness for the past six months, but local governments have not yet adjusted their own expectations so some land parcels' open bid prices (base prices) were set too high," he added.

The current situation marks a stark contrast to the same time last year, when major Chinese developers were nicknamed the 'land kings' due to their aggressive bids.

But the Chinese property market is markedly different today. Prices have been correcting since late last year, as government steps to cool frothy prices have taken effect.

Housing prices fell for a third straight month in July, data from the China Real Estate Index showed. Average new home prices in the 100 Chinese cities surveyed fell 0.8 percent compared to the previous month, sharper than June's 0.5 percent on-month decline.

People at a real estate trade fair in Beijing, China.
ChinaFotoPress | ChinaFotoPress | Getty Images
People at a real estate trade fair in Beijing, China.

But Michael Klibaner, head of research for greater China at JLL, told CNBC on Wednesday he sees Chinese property prices bottoming soon, which should provide some relief for developers.

"We've seen that mortgage availability has been steadily improving which is critical for first time home buyers; we've seen discounting by developers which is luring buyers back into the showroom; and at local levels we've seen easing of some of the policies…so taken collectively this is enough to help stabilize transaction volumes," he said.

Tightening measures have included stricter enforcement of a 20 percent capital gains tax on home sales profits and higher down payment requirement and mortgage rates on second homes.

Read MoreChina property stocks jump on hopes curbs will be relaxed

More recently, the government has rolled back curbs on some second and third-tier cities – although restrictions in Beijing, Shanghai, Guangzhou and Shenzhen remain in place.

"Two things can happen when prices fall. People may think they'll fall further, let me just wait, or they say 'well it's cheaper than it was last week so let me go and buy now' – and we think it's the latter," added Klibaner.

"Frankly the only time I've seen really negative sentiment was in 2008, no matter how cheap things were people weren't interested in buying an apartment… and here we see that those discounts are luring buyers back in… and heading into September and October which is a seasonally strong period we think volumes will be there," he added.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.