Strong bidding for Xiamen land points to continued home price rises

As temperatures rose into the mid 30s one recent Friday morning in Xiamen, residents were warned of the risk of heatstroke. But things were getting much hotter at the auction hall at the city's Administrative Service Centre.

A lot in the Tongan district, described as the last waterfront site on Xiamen's outskirts, was sold to Poly Real Estate for 3.38 billion yuan (HK$4.24 billion) after 110 rounds of fierce and frenzied bidding that saw it beat out two keen rivals, including Hong Kong-listed China SCE Property Holdings.

The price tag, representing 10,318 yuan per square metre, marked the first time land prices in the district had pierced the 10,000 yuan mark.

"The fierce bidding and higher land cost indicate that Xiamen home values are unlikely to fall," said Zhou Xiaojian, deputy manager of research at Centaline's Xiamen office.

New home prices in the southeast coastal city saw the third-biggest growth - 1.64 per cent - among the 100 cities tracked by the China Real Estate Index System (CREIS) last month, capping 24 consecutive monthly rises.

The better-than-expected land auction result came two months after Xiamen quietly loosened home purchase rules, allowing non-local residents to buy one home once they paid a full year of social security levy in a lump sum. Previously, non-local residents needed to stay and work in the city for one year and have proof of tax payment before they could buy a first home.

However, a Xiamen Bureau of Land Resources and Real Estate Management spokesman said restrictions on home purchases in the city were still in place and that there had been no instructions from the government to remove the curbs.

Zhou said non-local residents now accounted for 45 per cent of new flat sales, down from 55 per cent before the restrictions on home purchases took effect three years ago.

Bucking the trend of other third-tier cities such as Yantai in Shandong, which are suffering from housing gluts as transactions fall, Xiamen developers have seen brisk sales even without offering discounts due to short supply and pent-up demand from non-local residents.

"Home prices have surged 30 per cent in the past 12 months," Zhou said, attributing the surge to the limited supply of new flats.

According to the latest Centaline report, the supply of new flats in the first half was 31 per cent down on the same period last year, with just 1.73 million square metres available for sale.

In the first half, the total transaction value for new homes rose 35 per cent year on year to 33.12 billion yuan.

Another major boost to home prices in Xiamen - a prefecture-level city in eastern Fujian province - comes from its closeness to Taiwan and a concerted effort to draw the two sides of the Taiwan Strait closer together.

Besides home buyers from Taiwan, Xiamen's property market also attracts affluent residents of the cities of Quanzhou, Zhangzhou, Longyan and Putian, all within one or two hours' drive.

"Fukienese are known for their entrepreneurial spirit as they tend to start up businesses at home and abroad," said Apple Pan Yumin, general manager at property consultant DTZ's Xiamen office. "We see lots of successful overseas Chinese businessmen are Fukienese."

For instance, nearly 80 per cent of privately run hospitals on the mainland were founded by entrepreneurs from Putian, while Fukienese also dominated Argentina's Chinese supermarket chains, she said.

"When they become rich, the first thing they want is to buy property," Pan said. "Xiamen is certainly their first choice in terms of education and infrastructure development."

A case in point is the Yang Shu luxury residential project, where 31 of 42 villas were sold for a jaw-dropping 93,000 yuan per square metre last month.

"The market was shocked by the deep pockets of these buyers," she said, adding that some were non-local residents.

Average home prices in the city centre have jumped 70 per cent to 35,000 yuan per square metre since the market bottomed out in 2011, Zhou said, while prices in suburban areas such as Jimei and Haicang had doubled to 15,000 yuan per square metre.

Developer Shimao Property is one of the major beneficiaries of the strong buying demand.

It said it had reaped revenue of two billion yuan from the sale of 400 units at its Xiamen Lakeside Garden in April and May.

The units were sold as bare shells for an average of 35,000 yuan per square metre, a company spokesman in Xiamen said.

"About half of our buyers are from Quanzhou and Longyan," he said. "They bought the units for the schooling of their children. Now we only have six units left unsold in this phase."

The last two residential blocks would probably be put on sale next year, he added.

"The restriction on home purchases cannot stop them from buying," he said. "They are using the names of their children aged over 18 or relatives to buy as many homes as they want."

This is part two on the diverging trends in the Yantai and Xiamen housing markets