The Hangzhou local government has imposed new measures in an attempt to keep the lid on record-high prices paid for land sites and aid Beijing in its efforts to cool the property market.
"They want to control the land price. Property prices will stay at a high level or rise further if land prices continue to go up," Alan Chiang Sheung-lai, head of DTZ's mainland residential property section, said.
The government would previously award sites to the developer with the highest offer in a tender or land auction. However, the Hangzhou authorities will implement a new measure under which the winning bid will be based on the price and the amount of subsidised housing planned on the site.
According to a report by House China, an online property news agency, the local government will stop the bidding when the bid for a site reaches a level that is 49 per cent higher than the opening bid. Then the bidders will have to bid with the floor area they are willing to provide for building subsidised housing on the site. The developer that allocates the most floor area for subsidised housing would win the site.
The new rule would only apply to private housing sites.
China Overseas Holdings won three residential sites in Hangzhou for a total of 5.6 billion yuan (HK$6.94 billion) at a land auction yesterday. The developer promised to build subsidised housing with a total gross floor area of 98,000 sqm. One of the sites could provide a total gross floor area of 101,000 sqm.
The Beijing local government has imposed similar measures in relation to auctions of prime sites. In July, Sinobo Group won a site with a bid of 2.63 billion yuan, or 33,831 yuan per sqm, and allocated 16,400 sqm of the floor area for subsidised housing. It is the most expensive site in the capital in terms of floor area.
However, Chiang said the rule could not apply to all private housing sites.
"Property sales and prices would be affected if there were subsidised housing in all projects. Potential buyers would not offer a high price for a flat in these projects," he said.