Gemdale is new ‘land king’ with 8.8 billion yuan purchase of Shanghai plot

Gemdale Group on Wednesday morning beat out more than 20 bidders to snap up a plot of land near Shanghai’s Pudong International airport for 8.8 billion yuan (HK$ 10.2 billion), the most expensive site sold in Shanghai this year.

The “land king” site, a nickname for Chinese developers paying sky-high prices for land parcels, is located southwest of Pudong International airport and 48 kilometres from downtown Shanghai.

The transaction price is the highest for all plots sold in the city this year.

The plot, also the largest available so far this year – equivalent to 20 football fields – attracted more than 20 bidders amid contested competition. Within five minutes the bidding price reached 5 billion yuan, according to reports from yicai.com, before it was eventually won by Gemdale with its 8.8 billion yuan offer.

The price tag translates into 33,000 yuan per buildable square metre, but considering other constraints, it is equivalent to an actual price of 41,500 yuan per sq m, which analysts said would require a sale price of at least 60,000 yuan per sq m to make a standard profit margin. This compares with the current 25,000 yuan per sq m price for homes adjacent to the plot.

“The auction again underlines how hot Shanghai suburban land is,” said Yan Yuejin, an analyst with Shanghai-based E-house China R&D Institute. “The popularity of the plot is particularly boosted by factors such as the free-trade zone in Pudong and Disneyland.”

The massive site , rarely seen at auction, is also an attraction, analysts said. Since 2012 only four parcels of land have been offered in excess of 133,000 sq m.

Zhuqiao, where the plot is located, is part of the China (Shanghai) Pilot Free Trade Zone. It is also designated by the local government as an aviation-related business hub.

Shanghai’s city government has attached stringent conditions to the sale which require the developer to allocate 5 per cent of the housing stock for subsidised homes, 15 per cent as homes for rental, and 60 per cent as small-sized homes.

Because the plot is near the airport, a ceiling height limit of 45 meters applies. The developer is also required to finish the interiors for all subsidised homes.

Gemdale’s purchase price represents a 286 per cent premium to the starting price.

Yan said speculation that the planned East Shanghai Railway Station might be located in Zhuqiao also fanned developers’ enthusiasm.

But Lu Wenxi, an analyst with Centaline Property in Shanghai, cautioned that the site currently has no metro accessibility. He added that industries such as civil aviation are not labour-intensive enough to attract significant population inflow, so it is doubtful whether the developer can transfer the high land price into high home prices.

But for Gemdale the latest acquisition represents an opportunity. The Shenzhen-based developer this year added three plots to its land bank, only one of which was located in a first-tier city.

“When other developers are aggressively acquiring land, you risk being edged out [if you don’t landbank],” Lu said.

Gemdale reported sales of 43.96 billion yuan in the first half, more than double from last year. CRIC, a consultancy, ranked the homebuilder 12th largest nationwide in the first half.

Since the start of this year, developers have flocked to first-tier cities to acquire land, even though most sites were located far from downtown areas and faced strict development requirements.

A site in Zhoupu, also in Pudong, sold in May for 5.4 billion yuan, setting a record that would later be broken by Gemdale. Another plot in Xinchang, Pudong, sold in late June for 2.44 billion yuan. The per buildable square metre land price for Zhoupu and Xinchang was 54,000 yuan and 35,700 yuan respectively.

During the second quarter, the average premium for residential land in the nation’s 10 largest cities was 82.2 per cent, up from 42.5 per cent in the first quarter, according to the China Index Academy.

Some analysts say surging land prices are due to a squeeze in supply, as Beijing, Shenzhen and Shanghai have been slow to release residential sites for auction.