China Property

Shanghai site fetches year high of 4.6b yuan

Mainland developer snaps up plot at auction, pointing to renewed interest in land as better sales and liquidity lift sector's credit ratings

PUBLISHED : Thursday, 30 May, 2013, 12:00am
UPDATED : Thursday, 30 May, 2013, 3:13am


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Mainland developers' appetite for development sites is growing, with a company yesterday paying the highest amount in Shanghai this year for a commercial and residential site.

The market for land on the mainland, particular in first-tier cities, has turned active in the past two months, with a record number of transactions.

Beijing Fu Run Tian Cheng won the site with a bid of 4.6 billion yuan (HK$5.83 billion) at an auction.

The amount is higher than the previous record for the year of 3.78 billion yuan paid by Shanghai Pudong Development (Group) for a residential site in Pudong district last month.

It is also 57 per cent more than the opening bid of 2.93 billion.

Jim Yip Kin-shing, the managing director of investment at DTZ China, said the bid exceeded his expectations.

"The site is not located in the city centre and was worth about 25,000 yuan per square metre," Yip said. "Only sites in city centre could fetch 30,000 yuan per square metre. But now, the site sold for 29,229 yuan per square metre. You can see the land price is rising."

Du Jinsong, a research analyst at Credit Suisse, said: "Developers are turning active in land acquisitions as it is easier to raise funds through offshore bond markets this year."

Another reason was that the property market had improved from last year. "Developers are optimistic about the market this year," Du said.

In 2010, the overheated land market drove the government to impose measures to cool the market.

Du said he did not believe the government would release more cooling measures this time as the economy was weaker than three years ago.

The 40,355 sq metre site can be developed into a retail, office and residential complex with a total gross floor area of 157,377 sq metres.

According to Song Huiyong, the head of the research department at Centaline (China) in Shanghai, the average price of nearby office projects is about 50,000 yuan per square metre. "The winning bidder is still able to generate reasonable profit based on current property prices," he said.

Meanwhile, mainland developers' credit ratings have improved significantly this year because of better sales and liquidity, according to Moody's Investors Service.

In a survey of 40 developers, the rating agency gave 31 companies "stable" outlooks, up from 20 at the end of last year.

"The sector has rebounded from the trough in the middle of last year when there was negative growth in property sales value," Moody's analyst Franco Leung Chun-pong said.

"But pent-up demand has boosted sales and we see developers offering more flats that target end users, and they are able to sell more flats.

"Plus, we do not see any tightening of onshore bank loans, so the liquidity of developers has improved."

Moody's expects the credit profiles of the rated developers to be largely stable in the next 12 months.

It also found that dim sum bond issuance dominated the property industry last month, but the amount raised by developers in the offshore bond market fell to US$1 billion in the first 20 days of May, from US$1.58 billion last month.