Hong Kong land sale

Land sales in China's first-tier cities heat up

Developers increase land purchases as market shows signs of recovery

PUBLISHED : Sunday, 20 September, 2015, 9:47pm
UPDATED : Monday, 21 September, 2015, 5:01pm

Developers have begun to beef up their land banks as China's residential property market shows signs of steady recovery.

Most of these land purchases are occurring in first- and second-tier cites but the resultant rise in land prices could squeeze some smaller players out of the market, say analysts.

"Land transactions, especially in the first-tier cities, have become very active," said David Ji, head of research and consultancy, Greater China, at international property consultant Knight Frank. "As property prices and transaction volumes rebound, developers have started bidding aggressively to replenish their land banks," he said.

Total land sales in terms of value rose to 72.7 billion yuan (HK$88.38 billion) in July before retreating slightly to 70.1 billion yuan in August, according to the data from the National Bureau of Statistics and the South China Morning Post.

Three residential sites in Shanghai were sold on September 16, with each site attracting more than 10 bidders and changing hands at prices more than double their opening bids. Shanghai-listed Shanghai Construction Group  bought a residential plot in Shanghai's Qingpu district for 2.6 billion yuan, 114.9 per cent more than its opening bid.

In Beijing, four sites have been sold for 18.7 billion yuan so far this month. Poly Real Estate, in a tie-up with Beijing Capital Development, bought a site in Chaoyang district's Sunhe area for 6.48 billion yuan. That translates into an accommodation value - the cost of the land divided by the gross floor area to be built on it - of 53,830 yuan per square metre, the highest in the area.

Alan Jin, property analyst at Mizuho Securities, said he believed the trend will continue.

"With sales set to reach a historical high in 2015, developers' war chests have been greatly improved compared with last year. In addition, inventories have started to level off. Inventories in tier-1 and some tier-2 cities have already declined to healthy levels," said Jin.

According to 17 major mainland developers monitored by BNP Paribas, their inventory as a percentage of annualised contracted sales averaged 51 per cent in 2013, 30 per cent last year and 19 per cent in the first half of this year, thanks to improved home sales and falling construction starts by developers.

Average prices across 70 major cities increased 1.7 per cent last month from a year earlier, reversing a downward trend since September last year, National Bureau of Statistics data showed on Friday.

Knight Frank's Ji, however, expressed concerns about the competitiveness of small players. "High land prices have kept some smaller developers from the market."

As smaller players usually focus on lower-tier cities, which are still facing high inventory, smaller players would face a difficult time going forward, said Ji.