Nanjing property market U-turns as government cooling measures take hold
City’s land authority cancels three of five planned land sales expected during a two-day period ending last Friday, while the remaining two were auctioned off for less than nearby sites
A set of poor land sales results have highlighted the softening real estate market in Nanjing, reflecting the effectiveness of recent government measures to cool a market that was seen as tipping towards overheating, exemplified by a strong buyer response for a home that had been the scene of a domestic tragedy in 2011.
Land authority officials in the city – the capital of Jiangsu province and the second largest city in the East China region – cancelled three of five planned land sales due to take place during a two-day period ended last Friday, while the remaining two sites were sold for less than those fetched by nearby sites at earlier auctions.
At last week’s tender, Longfor Properties won a site for 2.36 billion yuan (US$344.01 million), or 13,993 yuan per square metre, 22 per cent lower than a site across the road that was bought by China Overseas Land and Investment last year. A second site bought by a unit of China Merchants Property Development went for a 36 per cent discount with a nearby comparable from an earlier auction.
“Buyers expect home prices to go down following the cheaper land sales. Thus more will take a wait-and-see approach,” said He Zhijie, manager of Nanjing Centaline Property Consultants.
The home purchase frenzy reached a crescendo in June when a villa, whose owner was killed and dismembered by his wife in 2011, received 138 bids. The home was eventually sold for 7.86 million yuan, 25 per cent higher than market valuation.
Sentiment towards the city’s property market has been under pressure since national and local governments imposed price caps and tightened mortgage lending.
Another hammer blow was delivered last month when authorities unveiled on August 13 new rules that prohibit corporate entities from purchases homes.
The measure comes in the wake of a message from the Communist Party’s Politburo – made up of 25 of China’s most senior leaders. On July 31, the top officials said that the country will remain firm on “containing home price gains”, removing the word “excessive” from the phrase used in its previous policy stance.
The current mortgage rate in Nanjing could be as high as 6.3 per cent, even for first-home buyers.
“The local government has put its foot down and is taking a quite tough stance,” said Meng Xiangyuan, vice-president of the Nanjing Real Estate Association. “It just took time from quality-change to quantity-change.”
According to data from China Real Estate Information Corp, 5,211 new homes were sold in Nanjing in August, more than 40 per cent lower than July.
Recently, the thinning queues of property buyers at sales centres for new projects, reflecting a reversal of the enthusiasm seen not long ago.
In the past week, five new public housing estates were released for sale, representing 1,100 units, of which 798 were sold. Only one of the five buildings sold out.
“You cannot find a single project that cannot sell out on the launching day just a couple months ago,” He of Nanjing Centaline Property Consultants said.
Some experts said the local market has swung from a seller’s to a buyer’s market.
“Developers did not take the government’s price cap seriously. They now realise that it is no joke when one after another cannot get a sales permit when setting the price too high,” said Chen Cheng, general manager of Property Market Headline, a Nanjing property consulting platform.
In a move to unload unsold flats by the end of the year, some developers have begun handing out incentives to buyers in the form rebates of up to 20,000 yuan.
“We may see further larger discounts in the coming quarter,” said Chen. “And probably a brutal price cut competition between developers will be staged in Nanjing, which have not happened for years.”