Land prices continue to sizzle in Shanghai

Developers continued to loosen their purse-strings for prized land banks in Shanghai with an auction on Wednesday attracting bids from 37 developers and the lucky winner paying a 300 per cent premium for the plot.

Poly Real Estate surpassed market expectations by paying 5.45 billion yuan (HK$6.47 billion), or 54,500 yuan per square metre, for the residential site in Zhoupu, a suburban area in the Pudong district of Shanghai. The final offer price, which was reached after 30 rounds of bidding, is in sharp contrast to the original offer price of 1.38 billion yuan. It is also higher than the HK$38,969 per square metre paid by Billion Real Estate on Tuesday for a residential site in Hong Kong’s Tai Po.

Analysts, however, feel that the high offer price move seemed risky, considering that the growth in home prices has tapered off in Shanghai.

“Factoring the rate that the developer paid, they would have to get a selling price of over 65,000 yuan per square meter to recover costs. The current average new home prices in the area is only 40,000 yuan. It is not realistic to expect home prices to jump by 60 per cent in the next two years,” said Gong Min, a senior research manager at Shanghai Centaline Property Consultants.

Gong said that there are also concerns that the first-tier cities would further tighten controls on home purchases which would increase price risks for expensive plots.