China property

Shanghai faces future home shortage as developers vie for scarce land

PUBLISHED : Monday, 18 July, 2016, 9:47pm
UPDATED : Monday, 18 July, 2016, 11:05pm

Property investment growth in Shanghaislowed in the first half of this year amid intense competition among developers for new land parcels in mainland China’s commercial capital, fuelling worries about a short supply of new homes.

Investment in real estate projects grew 8.7 per cent to 168.5 billion yuan (HK$195 billion) in the first six months of this year, compared to a 15.8 per cent year-on-year rise recorded in the same period of 2015, Tang Huihao, chief economist of Shanghai Statistics Bureau, told reporters at a press conference Monday.

The slower growth adds to evidence that Shanghai is grappling with a severe shortage of new land to build residential properties, likely to result in a new round of home price surges following a series of austerity measures by the city government.

“As Shanghai deepens its restructuring of industrial mix, the local economy’s reliance on the property sector will gradually decrease,” said Tang.

Output of the real estate industry accounted for 6.3 per cent of the city’s gross domestic product in the first half, down 0.5 percentage point from the same period last year.

Between the second half of 2015 and the first quarter of this year, home prices in Shanghai jumped at least 50 per cent as property buyers were battered by fears of dwindling supply of new dwellings in the mainland’s biggest metropolis.

Real estate developers flocked to new land parcels, bidding up the prices sky-high to secure space for development projects in future.

Last week, Hong Kong-listed Future Land Development beat more than 10 rivals, paying a record 3.7 billion yuan to win a bid for a nearly 20,000 square metre site within the Middle Ring Road.

Based on the balance between supply and demand, it is safe to expect a further home price increase in Shanghai
Ouyang Jie, Future Land

Analysts said the fever for new land would continue through the end of 2016 as developers believed that a scarcity of new land would eventually lead to a hefty rise of newly-built homes in the next few years.

In late March, the municipality heightened requirements for non-locals’ home purchases and tightened oversight on financing through the shadow banking system to rein in soaring home prices.

Tang said the curbing measures took effect as new home sales slowed in the second quarter.

But the austerity measures aimed at curbing fresh demand rather than increasing supply wouldn’t be enough to stop home prices from jumping further in a long term.

“The most effective measure will still be an increasing and sustainable supply of new land for developers to build new homes to meet homebuyers’ demand,” said Ouyang Jie, a senior vice-president of Future Land. “Based on the balance between supply and demand, it is safe to expect a further home price increase in Shanghai.”

For the first half, Shanghai’s economy expanded 6.7 per cent from a year ago, on par with the national figure.

Tang said that the economic fundamentals of Shanghai remained healthy as its service sector continued to grow at a fast pace.

The city’s service industry reported an output of 917.6 billion yuan in the first six months, up 11.6 per cent year on year.