Demand for land in first-tier mainland cities remains strong

Mainland developers' appetite for land in first-tier cities remains positive despite mounting liquidity risks amid a wider property market downturn.

Hong Kong-listed mainland developers Modern Land (China) and Beijing North Star have joined forces to secure a residential site in Beijing for 1.26 billion yuan (HK$1.59 billion).

The two companies won the site in a joint bid at a government land sale on Monday, Modern Land said in a filing with the Hong Kong stock exchange on Tuesday.

The 77,202 sq metre plot in the capital's Shunyi district has a gross floor area of 109,346 sq metres. The land cost in terms of gross floor area is 11,523 yuan per square metre.

Modern Land said it considered the acquisition a strategic move to boost its land reserve in Beijing, "where the development potential is exceptionally high".

The developer said at least 25,300 sq metres of gross floor area at the site would be set aside for cheaper homes under the mainland's affordable housing policies. Those units would be offered at prices capped at 13,000 yuan per square metre.

The remaining 59,012 square metres would be capped at 18,000 yuan per square metre.

Zhang Dawei, a research director at the mainland division of Centaline Property Agency, said bidding remained keen in first-tier cities such as Beijing and Shanghai because of limited supply.

"Developers always face competition for land in major cities such as Beijing," Zhang said, adding that the Shunyi site also drew bidding from players such as China Vanke and Poly Real Estate.

According to research institute China Real Estate Information Corp, the average selling prices of sites sold in 100 mainland cities fell 13 per cent quarter on quarter in the third quarter, but average transaction prices of sites in first-tier cities rose 9 per cent.

But the report said bidding interest and transactions in inland cities remained low.

Beijing announced a series of credit-relaxation measures by the end of last month including encouraging banks to provide credit to developers and cutting mortgage rates for first-time buyers.

It was also reported by mainland media that the People's Bank of China could relax controls on construction loans in a bid to bolster the property market. At present, construction loans can only account for 10 per cent of total lending.

Going forward, banks may have the authority to adjust the loan quota for developers, according to a report by investment bank Jefferies.

Modern Land shares fell 0.79 per cent yesterday to close at HK$1.26 while North Star lost 0.85 per cent to HK$2.34.