Land prices go through the roof in top Chinese cities
Land prices in the biggest Chinese cities continue to skyrocket, with 118 sites sold at huge premiums so far this year, show new data.
By May 19, 118 land parcels had been sold at steep premiums in the 22 top cities tracked by research house China Real Estate Information Corp (CREIC). Developers paid more than 100 per cent premium for nearly 60 of them while the premium reached 400 per cent for some.
“Mid- and small-sized developers were the most aggressive in their bids,” CREIC said.
As competition intensifies and the industry consolidates, smaller real estate firms have no alternative but to expand faster to avoid being knocked out of the market, it said. Land prices have also jumped in first- and second-tier cities in the past year as new players have swarmed in to take advantage of a market divergence that has taken root in China in which property prices in bigger cities have shot up while oversupply plagues smaller cities.
In April, the municipal government of Suzhou, a city near Shanghai, sold 13 sites for 25 billion yuan. The two-day land auction saw the emergence of several new “land kings”, or high-priced plots, as they are called in China. Mid-sized developer Jingrui Holdings purchased a plot in Gaoxin district at 19,699 yuan a square metre, even more expensive than the district’s current average selling price for new flats.
There could be some speculative investment as developers are betting on a steady rise in home prices, said David Hong, head of research at CREIC.
Alarmed by the land-buying binge, analysts are warning of a looming market correction.
“It would very hard to make profit out of ‘land kings’ as the market is expected to enter a period of adjustment in the second half,” said Tospur research director Zhang Hongwei.
The apartments built on such premium land target high-end customers, many of whom have been shut out of the market as a result of the recent cooling measures, he added.
The pace of home price appreciation in April slowed in first-tier cities such as Beijing and Shanghai after China tightened homebuying norms as it stepped up efforts to rein in prices.
Developers could also find their liquidity strained after paying through their nose for land and given the high financing cost, Zhang added.
On Tuesday, rating agency Moody’s downgraded Greenland Holding’s issuer rating to Ba1 from Baa3 and Greenland Hong Kong’s corporate family rating to Ba2 from Ba1 for its high debt leverage and weak credit metrics.
Shanghai-based Greenland Holding bought two ‘land kings’ in Beijing earlier this year.
Official news agency Xinhua published an article on Tuesday warning of leverage risks in the property market, in the government’s latest move to check runaway prices. “Land speculation by local governments must be curbed,” it said.
The Suzhou government last week became the first to set maximum permissible prices for land auctions. One plot failed to be sold on Monday as it crossed the ceiling.