New | China's luxury home market heats up, worries also increase
Developers take advantage of the market recovery to quicken the pace to sell homes targeting the rich to recoup the high land costs
Many such projects are built on land parcels bought in the past two years at a high price, leaving developers with no alternatives but to target the country's richest as potential clients.
For example, Sunac China Holdings will price a luxury project near Beijing's prime East Third Ring Road by up to 400,000 yuan (HK$506,000) per square metre for lakeside homes.
The developer bought the site at the peak of the country's housing market in 2013 at more than 70,000 yuan per square metre - a record for the capital that year.
The project, One Sino Park, is so expensive that Sunac's founder and chairman Sun Hongbin said he could not afford it.
"We are trying to understand what rich people really want," Sun said last week, adding that potential clients included entrepreneurs who controlled companies listed in the country's growth board instead of coal-mine owners traditionally.
Recent research found that the mainland's new rich were mostly from the internet technology and financial industries and were much younger, thus of a totally different taste compared to the past wealthy generations.
Apart from One Sino Park, Sunac has eight other high-end projects on sale at different stages of development in Beijing.
Across the capital, 10 projects priced above 100,000 yuan per square metre are on sale now and a further 15 will come on to the market in the next six months, bringing total supply to more than 2,000 units.
Before 2015, Beijing sold an aggregate 113 units of luxury homes priced above 100,000 yuan per square metre, while transaction volume so far this year has already exceeded that, according to data from property agency Centaline China.
The figures also showed 2,004 homes priced more than 10 million yuan were sold in Shanghai in the first five months, up 109 per cent from a year earlier. The market expectation is for such transactions to exceed 5,000 units this year, hitting a new record.
While some are happy to see increasing supply and a rare rally in the stock market pushing up sales of luxury homes on the mainland, others are more worried about soaring land prices, which are forcing developers to design their projects towards the high end, eventually creating a glut of expensive homes due to very limited demand exacerbated by a slowing economy.
"Only 10 per cent of land sites sold at high prices in 2013 have come on to the market by now," said a senior consultant who has been in Beijing's housing market for more than a decade.
"The rest of the developers don't know what to do. If they target the high end, there will be an oversupply. But if not, they will lose money because of the high land cost they paid."
On the other hand, the mainland's richest are broadening their search for luxury homes and have invested in global gateway cities such as New York, London and Hong Kong.
But Sun said: "As long as land supply cannot be increased, the price of luxury homes will trend even higher."
Land supply is the most scarce in Shenzhen, which partly explains why the city has outperformed its peers in the recent recovery from an 11-month market downturn. It is also very tight in the core areas of Beijing and Shanghai, as well as a few provincial capitals.
As a result, land prices in these cities have barely cooled even during the correction in the housing market, and the pace of increase has picked up again, now that the authorities have relaxed financing restrictions for developers and made it easier for people to buy second homes.