Beijing raked in nearly 30 billion yuan in the last two weeks of October, selling 12 parcels into a white hot land market to which almost all the country’s developers are flocking. While a boost to the capital’s fiscal income, it also presents it with a dilemma: a possible oversupply of expensive homes versus an undersupply of modest ones for average, middle-class families. “All developers are now increasing their presence in tier-one cities like Beijing,” said Guo Yi, marketing head at Yahao Real Estate, a Beijing-based agency that specialises in luxury homes. “The hot competition means either you quit the market totally, or you have to accept high land prices.” To reduce competition and help shoulder upfront cash payments, developers are going hand in hand. For example, a consortium of Cofco Property, Beijing Capital Land and Tian Heng Development bought a site on Friday in the city’s south, between the fourth and fifth ring roads, 8.595 billion yuan, the second-highest aggregate price paid in Beijing. The hot competition means either you quit the market totally, or you have to accept high land prices Guo Yi, Yahao Real Estate It was 45 per cent higher than the reserve price set by the government at the beginning of bidding, which lasted two hours. Industry experts estimate the floor space cost at more than 50,000 yuan per square metre. Just 10 days earlier, another consortium, led by state-owned China Gezhouba Group, won a plot in the city’s southwest at the floor space cost of 75,000 yuan per square metre, the highest ever in Beijing. Bidders pushed the aggregate price from the 3.3 billion yuan set by the government to 4.95 billion yuan. “That is why we are expecting the margin for developers will remain low and under pressure,” said Kaven Tsang, vice-president and senior credit officer at Moody’s. “It will be difficult for them to translate all the increasing land price to the buyers, even though the market has improved, but not that strong.” Beijing and other tier-one cities including Shanghai and Shenzhen have outperformed the rest of the mainland in a policy-induced housing market recovery. Economists expect China will further cut interest rates and relax down payment rules to stimulate the slowing economy. The ending of the decades-old one-child policy will also increase housing demand, as families planning to have a second child will need to upgrade to bigger homes. However, an oversupply of expensive homes is looming. The capital sold more such homes this year than the total amount in the past six years, but 14 of the 19 new projects that are selling at prices above 100,000 yuan per square metre have sold fewer than five units, according to agency Centaline China. The collective move by developers to the high-end of the market is cutting the supply of modest homes, where the government is playing a bigger role. The capital has, since late 2013, launched a new state-subsidised scheme called “self-use commodity homes”, which are priced 30 per cent lower than those in the neighbourhood. But buyers can only sell them after five years of ownership and need to share 30 per cent of the capital gain with the government. Since then, Beijing has sold 57 land parcels for such projects, part of a total supply of 181 lots for property construction. About 55,000 units have been sold from such schemes, helping to contain the rise in Beijing’s average home prices. Yet, there are still more than 1 million families on the waiting list. Analysts are worried that such government schemes are worsening land scarcity, an issue in Beijing as it is in other big cities around the world, like Hong Kong and New York. Beijing has put another 20 parcels up for sale in the rest of this year, with a combined reserve price of 43.8 billion yuan. Apart from residential projects, they could also be used to build offices and shopping malls, or public facilities such as schools and hospitals.