State developer sets land price record in Beijing

A state-owned developer set a Beijing land price record of 75,000 yuan per square metre last week, adding fuel to an already heated debate about how to make a profit from such expensive plots of land.

If history is any guide, the risks are worth it, with the capital’s home prices rising so rapidly that aggressive acquirers reaping handsome profits.

However, there are rising fears the next chapter may be different, especially given mainland economic growth is slowing more rapidly than expected, and those fears are putting off private sector bidders.

“Developers are looking to the long term, not now,” said Guo Yi, marketing head at Yahao Real Estate Selling & Consulting Solution Agency, which specialises in luxury homes. “They are confident about Beijing, especially as the government is now relaxing macroeconomic policies now.”

On October 20, China Gezhouba Group, a state-owned construction firm that is also involved in a variety of other businesses including real estate development, outbid several consortiums led by industry heavyweights including China Vanke, Longfor Properties and China Cofco Property.

The aggregate price it paid was 4.95 billion yuan, 50 per cent higher than the reserve price set by the local government at the beginning of the auction.

Industry experts estimated the price for the private residential part of the project, excluding more than 100,000 square metres of affordable housing and other public facilities the developer would need to hand over to the government, at 75,000 yuan per square metre, beating the previous record of 73,000 yuan per square metre set two years ago by luxury home builder Sunac China.

However, the plot of land Gezhouba bought last week lies between the city’s third and fourth ring roads in the southwestern district of Fengtai, a former backwater that has boomed in recent years as Beijing expands rapidly due to the limited supply of land in more central districts.

The plot acquired by Sunac was in a prime location near the third ring road in Beijing’s east, an area that has since seen no new supply of land. Sunac chairman Sun Hongbin said in June that he planned to market a project on the site later this year, with prices as high as 400,000 yuan per square metre for the best units, with lake views.

But Sun has turned more cautious in recent months, warning against high land prices in the tier-one cities of Beijing, Shanghai, Shenzhen and Guangzhou, joining senior executives from China Vanke and Longfor Properties.

Mainland media have reported that some non-state-owned developers are considering pulling out of consortiums that won plots at higher prices than they had expected.

Such retreats by private developers contrast sharply with the attitude of state-owned rivals such as Gezhouba, who are taking advantage of others’ fear about the market slowdown to branch out quickly. The mainland’s state-backed firms usually enjoy much lower fundraising costs and easier access to financing than private rivals, allowing them to survive downturns and hold onto expensive sites longer, waiting for the market to warm up again before starting construction.

In general, mainland developers are finding that funding is easier and cheaper this year, with the authorities having lifted restrictions on raising money from the stock and bond markets, and cut interest rates six times in less than a year.

But while frenzied bidding continues in tier-one cities, the situation elsewhere on the mainland is calm, if not chilly, with developers scaling back expansion to prepare for unprecedented challenges.