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  • Dec 24, 2014
  • Updated: 11:29pm
PropertyHong Kong & China

Strong bidding for Xiamen land points to continued home price rises

Fierce bidding for plot comes after loosened purchase restrictions for non-residents fuels strong buying demand in southeast coastal city

PUBLISHED : Friday, 18 July, 2014, 2:52am
UPDATED : Friday, 18 July, 2014, 2:52am

As temperatures rose into the mid 30s one recent Friday morning in Xiamen, residents were warned of the risk of heatstroke. But things were getting much hotter at the auction hall at the city's Administrative Service Centre.

A lot in the Tongan district, described as the last waterfront site on Xiamen's outskirts, was sold to Poly Real Estate for 3.38 billion yuan (HK$4.24 billion) after 110 rounds of fierce and frenzied bidding that saw it beat out two keen rivals, including Hong Kong-listed China SCE Property Holdings.

The price tag, representing 10,318 yuan per square metre, marked the first time land prices in the district had pierced the 10,000 yuan mark.

"The fierce bidding and higher land cost indicate that Xiamen home values are unlikely to fall," said Zhou Xiaojian, deputy manager of research at Centaline's Xiamen office.

The market [in Xiamen] was shocked by the deep pockets of these buyers

New home prices in the southeast coastal city saw the third-biggest growth - 1.64 per cent - among the 100 cities tracked by the China Real Estate Index System (CREIS) last month, capping 24 consecutive monthly rises.

The better-than-expected land auction result came two months after Xiamen quietly loosened home purchase rules, allowing non-local residents to buy one home once they paid a full year of social security levy in a lump sum. Previously, non-local residents needed to stay and work in the city for one year and have proof of tax payment before they could buy a first home.

However, a Xiamen Bureau of Land Resources and Real Estate Management spokesman said restrictions on home purchases in the city were still in place and that there had been no instructions from the government to remove the curbs.

Zhou said non-local residents now accounted for 45 per cent of new flat sales, down from 55 per cent before the restrictions on home purchases took effect three years ago.

Bucking the trend of other third-tier cities such as Yantai in Shandong, which are suffering from housing gluts as transactions fall, Xiamen developers have seen brisk sales even without offering discounts due to short supply and pent-up demand from non-local residents.

"Home prices have surged 30 per cent in the past 12 months," Zhou said, attributing the surge to the limited supply of new flats.

According to the latest Centaline report, the supply of new flats in the first half was 31 per cent down on the same period last year, with just 1.73 million square metres available for sale.

In the first half, the total transaction value for new homes rose 35 per cent year on year to 33.12 billion yuan.

Another major boost to home prices in Xiamen - a prefecture-level city in eastern Fujian province - comes from its closeness to Taiwan and a concerted effort to draw the two sides of the Taiwan Strait closer together.

Besides home buyers from Taiwan, Xiamen's property market also attracts affluent residents of the cities of Quanzhou, Zhangzhou, Longyan and Putian, all within one or two hours' drive.

"Fukienese are known for their entrepreneurial spirit as they tend to start up businesses at home and abroad," said Apple Pan Yumin, general manager at property consultant DTZ's Xiamen office. "We see lots of successful overseas Chinese businessmen are Fukienese."

For instance, nearly 80 per cent of privately run hospitals on the mainland were founded by entrepreneurs from Putian, while Fukienese also dominated Argentina's Chinese supermarket chains, she said.

"When they become rich, the first thing they want is to buy property," Pan said. "Xiamen is certainly their first choice in terms of education and infrastructure development."

A case in point is the Yang Shu luxury residential project, where 31 of 42 villas were sold for a jaw-dropping 93,000 yuan per square metre last month.

"The market was shocked by the deep pockets of these buyers," she said, adding that some were non-local residents.

Average home prices in the city centre have jumped 70 per cent to 35,000 yuan per square metre since the market bottomed out in 2011, Zhou said, while prices in suburban areas such as Jimei and Haicang had doubled to 15,000 yuan per square metre.

Developer Shimao Property is one of the major beneficiaries of the strong buying demand.

It said it had reaped revenue of two billion yuan from the sale of 400 units at its Xiamen Lakeside Garden in April and May.

The units were sold as bare shells for an average of 35,000 yuan per square metre, a company spokesman in Xiamen said.

"About half of our buyers are from Quanzhou and Longyan," he said. "They bought the units for the schooling of their children. Now we only have six units left unsold in this phase."

The last two residential blocks would probably be put on sale next year, he added.

"The restriction on home purchases cannot stop them from buying," he said. "They are using the names of their children aged over 18 or relatives to buy as many homes as they want."

This is part two on the diverging trends in the Yantai and Xiamen housing markets


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Selling land was not the option adopted in developing the country in America. Land was given away. The result led to economic development through private sector. Government benefitted too through taxation. It was a solid development and laid a good economic foundation that benefitted what US is today.
Selling land for government revenue and economic development, on the other hand, has proven to be highly problematic both in Hong Kong and China. China has awakened from its adoption that was introduced in the 80s (incidentally by CY Leung) of Hong Kong’s land policy. China is putting restriction in land selling and encouraging local government to seek revenue from elsewhere. Chief Executive, CY Leung is beginning to follow in step and see property developers are not kings in Hong Kong.
An expedient and lazy way to amass wealth what China and Hong Kong’s government has done must now really pay.
The Financial Times says recently that Beijing should not kill the golden goose that is Hong Kong.
Well, the same can be said about the Chinese local governments' land finance --- killing it is like demolishing China's Great Wall !
As a result of the tax-sharing scheme between the central government and provincial governments as part of the 1994 tax reform, the resulting high-land-price policy in the country, copied from Hong Kong, has made China what she is today.
We have always been wondering how China’s overall sleeping stock market can help finance the country’s relatively quick economic growth over the years.
Well, part of the answer is that the country has another important stock market, which is the local governments’ land market --- its financing ability has been much better than that of the share market.
In this 'share market', the ‘city shares’ are financed and transacted, and this requires a quick rise in the country’s liquidity.
This partly explains the country’s relatively high M2/GDP ratio --- the rising house prices acts as a sponge which absorbs the country’s massive increase in liquidity over the years.
In the past 24 years, China’s M2 rose on average by 21% annually, together with 9.9% for her real GDP, only 4.6% for the CPI, and 10.7% for the house price.
If we add up the 9.9% and 10.7% mentioned above, it’s 20.6%, about the same as 21%.
The rise in house prices is not included in the basket of the CPI calculation.
If the central government determines to suppress the country’s house prices, a direct result is accelerating inflation in the country !
The problem of land budget in the country is a problem of the central bank.
With such an over-issuance of money, can we expect the house prices to come down easily ?
In a sense, land finance is the monetary policy (ignoring the funds outstanding for foreign exchange, that is).
Unlike the Western countries whose ancestors had to bloodily grab the resources from their colonies in the past to accumulate their capital for further economic development, China has been able to quickly develop her economy, engage in industrial revolution, go capitalist, reduce her average level of poverty, improve her overall standard of living, and rise peacefully in the world, by relying mainly on her land finance as an important source of fund over the past decades.
(Chinese readers: ****opinion.caixin.com/2014-07-15/100704124_all.html#page2)
(Of course the country's FDIs and imported management skills and technologies have also contributed to the country's rapid economic growth.)
Indeed a certain Chinese property market leader once jokingly said that, without the property market, there will be no New China.
What if one day in the future most of the Chinese cities have no more land to sell ?
Well, by that time, most of the cities’ important infrastructure facilities will already have been installed and so land-sale revenues and the accompanying taxes and fees will no longer be vital to the cities’ finance.
They can rely on other taxes and fees to fund their future expenditures, as in present-day ShenZhen.
That's why the hukou/rural-land reform is so crucial nowadays because, with the subsequent massive migration of rural farmers into the cities, it enables the local governments' land finance to be successfully sustained (together with all the benefits of economies of scale), particularly in the third- and fourth-tier cities in the middle and western parts of the country.
This is especially so if we consider also the political necessity of maintaining the tax-sharing scheme between the central government and provincial governments.
(But there is an implicit assumption here --- China's capital control remains intact in the foreseeable future.
If the control is further relaxed and the Chinese residents have the chance to invest in the foreign countries at comparatively high rates of return, then the future sustainability of the local governments' land finance can no longer be taken for granted.)
If the above reform is successful, the Xi & Li Reformation will forever be remembered in the Chinese and world history, and will also be regarded as even more important than Japan's Meiji Restoration.
Many people say that in China, house demand is a rigid (inelastic) demand because they have to live inside the houses, but from the point of view of the local government’s land finance, house buying is a form of investment (and a hedge against inflation) on the part of the buyers, even for those people having rigid demand.
In Xiamen, the price of an indemnificatory apartment (保障性住房) is only 70% of the market price, but people there refuse to buy them.
According to Xiamen’s regulations of indemnificatory apartments, if a person wants to return the apartment, he or she can only return it to the government, at a price which is only about 70-80% of the original buying price, after taking into account the corresponding physical depreciation.
The house has actually depreciated, not appreciated, in value.
So, in Xiamen, about 80-90% of the people just rent the indemnificatory apartments, rather than buying them.
Instead they use their remaining money to buy their own houses in the market, because only the latter are real investments that are potentially much more profitable to own.
SCMP's informercial at work in its Property. It is creating a market and not reporting a market.


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