China Land Sale

How China’s most contested land auction drove developers into a frenzy

Luck mattered more than money for hundreds of property developers bidding on eight plots of land put up for auction by local governments in Jiaxing

PUBLISHED : Wednesday, 24 May, 2017, 8:04am
UPDATED : Wednesday, 24 May, 2017, 10:48am

Luck mattered more than money for hundreds of property developers who bid on eight plots of land put up for auction by a local government, in a frenzied scene in China’s real estate market.

At least 400 developers from across the country jammed into a grand theatre in Jiaxing, a small Chinese city nestled between Shanghai and Hangzhou, on Monday for the land auction. It took just five minutes for the first plot of land to hit a ceiling price imposed by the government, requiring the use of a lottery-style process to determine the winner. The developer who finally emerged as the winner was as extraordinarily excited as “an actor winning the Oscar”, the local Qianjiang Evening News reported.

The 88 developers who agreed to pay ceiling price for the first plot of land had also agreed to make full payments within 30 days. Five out of the eight plots hit the ceiling mark, requiring the lottery system to be invoked to decide the winner.

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“Developers are enthusiastic about buying land” in small cities, as land in places like Beijing and Shanghai becomes scarce and expensive, said Yan Yuejin, a researcher with E-House China R&D Institute, a consultancy that tracks land deals across China.

“There is room for land prices to increase in places such as Jiaxing ... It means property prices will continue to rise,” said Yan. One reason for Jiaxing’s bright prospects is that the city is integrating with neighbouring Shanghai.

While Jiaxing, a city under the leadership of former Chinese President Hu Jintao’s son Hu Haifeng, is particularly attractive for developers given its good location and relatively low property prices, land prices in other Chinese cities are also rising.

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Nationwide, land deals in the first four months of the year jumped 34.2 per cent in value from a year earlier and 8.1 per cent by area, according to figures released by the National Bureau of Statistics.

In China, the supply of urban land for development is controlled by municipal authorities, and many local governments rely heavily on land sales for revenue. At the same time, local governments are also imposing restrictions on property deals to cool off speculation.

Just two days before the auction, Jiaxing imposed new restrictions that require home buyers to hold on to their properties for at least two years before putting them up for sale. In March, after speculative money from Shanghai sent property prices in the satellite city soaring, Jiaxing raised the minimum down payment requirements for non-Jiaxing residents and stopped them from buying second homes.

So far, at least 50 cities across the country have imposed restrictions on home transactions to avoid the inflating property market.

“The policies have focused only on curbing demand, neglecting the need to increase demand as land is controlled by the government,” said Cai Jiming, a professor with Tsinghua University.