Land prices continue to sizzle in Shanghai

Suzhou announces new measures to rein in real estate prices

PUBLISHED : Wednesday, 18 May, 2016, 10:04pm
UPDATED : Wednesday, 18 May, 2016, 10:09pm

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.

Shanghai property market beset by ‘panic buying’ on the back of favourable policies

“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.

Developers have been flocking to China’s biggest cities for land banks after the market weakened in smaller cities due to oversupply and a slowing economy. Last week, developers paid more than double the offer prices for three residential plots in Sijing of Songjiang district, on the outskirts of Shanghai.

The buying frenzy has also spilled over to some second tier cities with strong economy, such as Nanjing and Suzhou. Average land prices in second-tier cities surged 180 per cent between January and April this year compared to the same period a year ago, according to the official Xinhua news agency. The Xinhua report also sounded a warning about the high leverage that developers use for the “gambling”.

For Shanghai property, time is money

But some analysts are still optimistic on the home price growth in top-tier cities.

“Middle class population in the top-tier cities are poised for fast growth and it would come as no surprise if prices for some projects go beyond 200,000 yuan or 300,000 yuan (per square metre), ” said Nicole Wong, a property analyst with CLSA. Wong said if developers can slow sales, they will be able to realise better premiums.

In a related development, the Suzhou Municipal Bureau of Land and Resources on Wednesday decided to set the maximum prices for 10 land parcels in an effort to curb the surging land prices in the city.