China property

Developers pick up Beijing land at rock bottom price, but with little margin for profit

PUBLISHED : Tuesday, 01 August, 2017, 9:09pm
UPDATED : Wednesday, 02 August, 2017, 10:50am

A consortium comprising China Resources Land, Country Garden Holdings and China Merchants Industrial Zone Holdings bought the first piece of prime land near the centre of the Chinese capital city at an auction on Tuesday at rock bottom price, in a sign that stringent market-cooling rules imposed by local authorities are keeping more developers and land buyers on the sideline.

The consortium paid 3.84 billion yuan (US$569 million) for the parcel just outside Beijing’s southern second ring road, with 73,598 square metres (792,202 square feet) of gross floor space, less than 1 per cent over the reserve price.

That translates to a price of 52,175 yuan per square metre, which provides little room for profit once other costs are factored in.

The result is a remarkable outcome in the first auction in five years in Dongcheng, one of two districts within the capital’s former city walls, considered prime land. Auctions within the second ring road have been very rare in recent years, while most new land sales had occurred outside the fifth ring road, furthest out from the city’s centre.

Three bidders had been in negotiations with each other before bidding began, but two backed away, leaving the consortium to win with little effort, according to a report on Netease, citing anonymous sources.

Bidders had to put down a cash deposit of 1.15 billion yuan, which may also have deterred some companies from taking part in the auction, Netease said, citing two other anonymous sources.

The fact that the parcel must be developed separately into residences and commercial space instead of en bloc may also have been a deterrent.

Dongcheng’s authorities imposed stringent conditions on the land before the auction: at least 70 per cent of homes built on the land must be smaller than 90 sq m in size, selling for no more than 89,068 yuan per sq m on average. At least half of the commercial space should also be held for lease for 20 years, according to the authorities.

“This is a prime site, with two subway lines crossing it,” said Centaline Property’s analyst Chen Xiaoqing, adding that the stringent conditions are already common in Beijing.

The last time Dongcheng put residential plots up for sale was in 2012, when a site near Dongzhimen was sold at 25,750 yuan per sq m. Prices on that same site have soared to 140,000 yuan per sq m.