Beijing relaxes caps on home prices partially as unsold flats in the capital city rise

Beijing, where property curbs are most stringent amid the central government’s drive to cool overheating in the sector, has put on sale another two land sites without a cap on selling prices in a policy shift that began late last year to generate demand for flats in the market slump.

The two plots in the capital city’s northeastern part of prime Chaoyang district were offered by the planning authority last week at starting prices of 2.45 billion yuan (US$362 million) and 2.39 billion yuan. A third site, put on offer since last October, has yet to be sold.

Unlike previous sales over the past two years, the government did not dictate the prices for flats that will be developed on the three land lots.

The policy shift came as efforts to lock in future selling prices to achieve a “stabilised outlook” by building units whose price is fixed in advance proved to be a hard sell, even if prices were lowered, and dampened developers’ appetite for land sites, said analysts.

Of the 24,893 such flats put on sale last year, only 4,530 of them, or 18 per cent, were sold by the year’s end, according to Ke Institute, research unit of property agent Lianjia. Eight land plots out of 52, failed to be sold, the highest number for Beijing city in five years.

“The latest [Chaoyang] sale sent a clear policy signal that the government wants to stimulate developers’ interest,” said Yan Yuejin, research director of the E-house China R&D Institute.

“Amid weak property sales and cash flow stress, not many developers dare to take the risk of acquiring a plot with a fixed selling price.”

Beijing sold 63 commercial and residential land sites last year, raking in 167.8 billion yuan, down 36 per cent from a year ago, according to Centaline Property.

In addition, authorities in tier 1 cities like Beijing and Shanghai also require that smaller units make up no less than 70 per cent of each development. A 90 sq m flat is priced between 3 million to 5 million yuan.

“Before the massive supply of these units, buyers have a much smaller choice after factoring in prices and locations; now these mid- and low-tier buyers face a large supply of similar offerings. It takes more time to visit and compare these projects across the city,” said Guo.

She said the Chaoyang sale was a “right modification” in policy as the sites were in the Sunhe area, known for low-rise luxury town houses. But it did not mean a complete removal of the price control as the government can still vet the pre-sale price.

Fang Yuan, a 36-year-old Beijing office worker, said she had visited five such projects in the past three months before taking a pause.

“I feel that these homes have a much smaller net area [compared to what was advertised], and I keep hearing news that there are quality problems,” she said.”Anyway, we are not in a hurry because the prices won’t rise.”

As homebuyers like Fang continue to mull on their decisions, the city’s unsold inventory will only grow. Centaline estimated that unsold units in 2019 could top 70,000, up from 20,000 last year.