Guangzhou appeared to be pandering to property developers last week when it set prices for small units 20 per cent higher than market rates, but analysts say it is aimed at controlling the market.
On Friday the Land Resources and Housing Management Bureau announced that two parcels of land in the city's science park development zone must have a small-unit ratio of 90 per cent, and their prices could not exceed 6,000 yuan per square metre.
It was the first time the bureau had set property prices, but questions were raised as to why the level was 1,000 yuan higher than prices of completed properties in the relatively undeveloped district.
Zhao Zhuowen , general manager of TCZY Property Investment Consultants, said the price gave developers a fat profit margin given the average cost was about 3,700 yuan per square metre.
'Guangzhou has had a lot of experience selling land and the government cannot be ignorant of [the above] two scenarios,' Mr Zhao said. 'I think they did this for strategic purposes. It is the first time they are playing games with the developers.'
Mr Zhao said that by setting prices high, the government could encourage developers to ensure that there was enough housing supply. But as time went on, the 'handcuffs will get tighter'.
Guangzhou authorities recently said Beijing's requirement that 70 per cent of new housing be small units would be applied on a balanced basis across the city, rather than on a project basis.