Residential land prices in Hong Kong have fallen below the levels for some sites in mainland China, indicating the city’s property correction is deepening and the price gap with major cities like Shanghai is narrowing. On Wednesday, a residential site in Zhoupu, a suburban area in the Pudong district of Shanghai, was sold for a higher-than-expected 5.45 billion yuan to Poly Real Estate. The price equates to 43,670 yuan per square metre, or 4,057 yuan per square foot. Hong Kong land prices are down to early 2015 levels, suggest estimates for Tai Po site The sale came a day after a large residential site in Pak Shek Kok, Tai Po, near Science Park sold for HK$3,620 per square foot, about 25 per cent cheaper than the Zhoupu site. It was also lower than the record 42,561 yuan per square metre, or 3,954 yuan per square foot, paid for a residential site in Hexi, in southwest Nanjian, in January. Although home prices in Shanghai still lag those in Hong Kong, it is fast catching up Thomas Lam, head of valuation and consultancy, Knight Frank The price for the Zhoupu site is also higher than what was paid for most of the government sites sold in Tai Po, Tuen Mun, Sham Shui Po and Sha Tin since last year. “Although home prices in Shanghai still lag those in Hong Kong, they are fast catching up,” said Thomas Lam, head of valuation and consultancy at Knight Frank. Average home prices in Shanghai were 70,000 to 80,000 yuan per square metre, equivalent to HK$7,713 to HK$8,816 per square foot, which were on par with those in the New Territories, he said. In Hong Kong, units in Tuen Mun and Yuen Long were sold for HK$7,600 and HK$8,330 per square foot, respectively, according to data from Centaline Property Agency. Land prices in the New Territories are expected to fall further Though some analysts believe the aggressive bidding by mainland Chinese developers, which has pushed up prices in most cities, is unsustainable in the long run, others feel it is only a matter of time before overall land prices in some mainland Chinese cities surpass those of Hong Kong. Alan Jin, an analyst at Mizuho Securities, said it would not be surprising if this were to happen in the next one decade or two. “Though the Chinese economy is slowing, it is still growing at a faster pace than Hong Kong. The population base is also different,” he said. “If Poly Real Estate was the only developer interested in the Zhoupu site, we would not see such high prices. The problem is there are far too many developers that are bullish.” Developer Sunac sees bubble in China land prices Poly Real Estate staved off competition from 36 firms to wrest the site, which is adjacent to the Shanghai Disneyland. Taking into account the construction cost, interest expenses and taxes, any project built on the site would have to sell for more than 70,000 yuan per square metre to recover the costs. However, the current average new home prices in the area are only 40,000 yuan per square metre. Irene Wang, senior director at CBRE Strategic Consulting, said land shortages in top-tier cities could be another reason for the high prices. “Whether Shanghai land prices will rise to the levels seen in cities like Hong Kong, Singapore and Tokyo will depend on the domestic supply and demand for land,” she said. Wang said Poly Real Estate was willing to pay such high prices for the Zhoupu site as it felt the area would benefit from the proximity to the Shanghai Disneyland. Central China Real Estate to turn away from buying land and focus on projects demanding less investment “The area will not only see an overall improvement in infrastructure, but also bring in hotels and other commercial projects to attract more people to move there. It will definitely help boost home prices in future,” she said. But developers’ frenetic bidding for land at record prices has also attracted government attention. The Suzhou Municipal Bureau of Land and Resources on Wednesday decided to cap the maximum price for 10 land parcels in an effort to curb surging land prices. Jin said the price swings could cause ripple effects in the housing and land markets. “Looking at the developers, it is clear that they are bidding aggressively for land on the assumption that housing prices in top cities will rise for several years, which probably is too optimistic,” he said.