Hot money pouring into Chinese luxury housing

June transactions for villas, and new apartments priced above 70,000 yuan per square meter, in Beijing hit new record highs

PUBLISHED : Thursday, 14 July, 2016, 7:31pm
UPDATED : Thursday, 14 July, 2016, 10:49pm

China’s luxury housing market continues to boom, despite government measures to slow it down, which has stimulated developers to bid even higher in big cities for prime plots of land, in an effort to target wealthy buyers.

June transactions for villas, and new apartments priced above 70,000 yuan per square meter, in Beijing hit new record highs, according to property consultancy Yahao.

In Shanghai, there were 682 transactions for new apartments priced around 100,000 yuan per sq m in the first half, already surpassing the number for the whole of last year, property services firm Tospur data shows.

“There is strong demand for this type of housing, as incomes grow,” said Huang Yu, executive vice president of the China Index Academy, a property research institute.

“Wealthier buyers are considering properties as safe investments, in anticipation of the yuan’s further devaluation.”

Cities including Shanghai and Shenzhen have rolled out stricter home-buying restrictions in the past few months, including raising minimum down payment requirements, in an attempt to cool sentiment.

Wealthier buyers are considering properties as safe investments, in anticipation of the yuan’s further devaluation
Huang Yu, executive vice president of the China Index Academy, a property research institute.

There are also market rumours the government will further tighten credit in some cities.

But still the luxury housing stands strong, luring cash-rich developers into paying top prices for the best parcels, so called “land kings”, on which to build high-end apartments.

On Thursday, Shanghai developer Future Land beat 14 competitors to win a rare residential plot in the city’s Hongkou district.

Deducting the share reserved for public housing, the land price was 87,000 yuan per square metre, setting a new record for the city. Analysts expect the future average selling price could be more than 120,000 yuan.

Future Land said the price was acceptable, citing the strong sales of high-end projects nearby.

One example it gave was Daning Jinmao Mansion, which sold out its newly launched 222 units in April within a day, at an average price of 92,000 yuan per square metre. The price for its remaining units has grown to 95,000 yuan.

“Home prices (in big cities) may see an adjustment in the short term, as prices have risen at the fastest level since 2015, ” said Zhang Hongwei, Tospur’s research director.

“But longer term in 2018-2020, there will be more room for growth.”

Zhang added that luxury products usually take longer to build, so the “land king” purchases actually represent developers’ confidence in the longer term.

But some analysts have expressed concern over the future growth of the high-end market.

“Recent land supply has all been for high-end products, but future demand may not be enough since much has been released in advance under the current wave,” China Index Academy’s Huang said.

The research house estimates that projects under construction in Beijing could provide 2.2 million sq ms of new supply after 2017, which is sufficient for three years of sales.