Hefei becomes latest Chinese property hotspot, with sky-high prices being driven by record land costs and speculative out-of-town buyers

Investors rush to get into the market, ahead of possible restrictions on purchases by non-residents

PUBLISHED : Tuesday, 27 September, 2016, 7:32pm
UPDATED : Tuesday, 27 September, 2016, 8:00pm

Cash-rich investors are flocking to buy homes in Hefei, the capital of eastern China’s Anhui province, amid speculation the city may roll out measures to curb a surge in speculative non-local buyers which has pushed new home prices sky-high.

The city’s property sector is also suffering, like many in China, from spiralling prices being paid by developers for government land being sold by local authorities over the past year to increase revenue.

China’s property bubbles – already the cause of heartburn for city planners in Beijing, Shanghai and Guangzhou – are spreading to outlying, smaller population centres, where living costs and income levels are lower.

Hefei’s property prices rose 40.5 per cent in August from last year, the fastest pace among 70 Chinese cities monitored by the statistics bureau, second only to Zhengzhou. Compared with July, average prices rose 4.8 per cent.

That’s enough to earn Hefei a new moniker. Along with Nanjing, Xiamen and Suzhou, these cities are now called the “four little dragons” for setting records in property prices.

Most of the buyers driving up prices aren’t even local residents. As much as 60 per cent of Hefei’s real estate buyers are so called “out-of-towners”, according to an estimate by Ling Bin, a researcher at Hefei College.

They are focused particulary on Binhu, a new district at the heart of the Hefei government’s urban renewal plan.

Businesspeople, including those who have made their fortunes in the coal mines of Anhui province, are dominating Hefei’s property sector, and many are buying multiple homes, agents say.

The buying spree has raised suggestions that local policymakers would emulate neighbouring cities including Nanjing, in enacting rules to limit purchases to local residents.

In Shanghai, rumours have even surfaced about possible government purchase limits, whipping the market into such a frenzy that couples were scrambling to annul their marriages to qualify for higher mortgage eligibility. The rumours were finally exposed to be hoaxes, concocted by property agents eager to cash in on the action.

On Sunday, a queue of buyers coiled around the block at the sales office of Sunac China Holdings Ltd’s One Central project in downtown Hefei.

In early 2015, land prices were no more than 5,000 yuan per square metre... now they are over 17,000 yuan per square metre, with the influx of national developers
Wang Min, who runs a local property website in Hefei

Apartments in the higher storeys, at 135-140 square metres, were selling for 30,000 yuan per square meter, while the low-rise 160-168 sq m townhouses were priced at 35,000 yuan per square metre.

That’s more than double the average price of 12,247 yuan per square meter for the city.

Within an hour of opening for sale, Sunac said it had sold all 148 units on offer, raking in total sales of 600 million yuan (US$90 million).

One of the main causes of China’s soaring nationwide property prices is the cost of acquiring land from local governments.

As Beijing shutters unprofitable state industries at a faster pace, local governments are resorting to selling land for revenue.

Sunac bought the prime land on which it’s building One Central nine months ago for a record 17,100 yuan per square meter.

“In early 2015, land prices were no more than 5,000 yuan per square metre,” said Wang Min, who runs a local property website.

“Prices have doubled in a few months and they are now over 17,000 yuan per square metre, with the influx of national developers.”

The record land prices have now forced the city’s developers who have sites near those being bought by so-called “land kings” – developers who have been bidding and paying huge prices for land in the country’s top cities – to raise their prices.

That in turn has led to panic buying, as speculators swarm in before the next record is set, said Min.

Fang Jing, a Hefei native, remembers when he could afford to buy a home there. A decade ago, property prices were 3,000 yuan a square meter, a third of the current average price, and a mere 10 per cent of what it costs to buy a unit at Sunac’s One Central. At the current prices, he can afford to do nothing.

“I’m just watching as an outsider now,” he said. “The prices are scary.”