China property

Shanghai has a new ‘land king’ as plot sells for 100,000 yuan per sq m — highest price ever

PUBLISHED : Wednesday, 17 August, 2016, 12:20pm
UPDATED : Wednesday, 17 August, 2016, 10:32pm

Fujian-based developer Ronshine China on Wednesday morning beat out 17 bidders to win a plot of land in central Shanghai’s Jingan district for 11 billion yuan (HK$12.9 billion), with the average cost hitting 100,000 yuan per square metre – the most expensive land ever in China.

It is the first residential land within Shanghai’s inner ring road, a traditional downtown area of the city, sold since 2004. The location is on Zhongxin Road, walking distance from four metro lines.

The price tag translates into 100,000 yuan per buildable square metre, but taking other constraints into consideration, it is equivalent to an actual price of 143,000 yuan per sq m.

“The record price shows developers’ confidence in Shanghai’s future home price growth. So it won’t be a surprise to see this new ‘land king’ set the selling price at more than 160,000 yuan per square metre,” said David Hong, head of research at consultancy China Real Estate Information.

A “land king” site refers to mainland Chinese developers paying record-breaking prices for land parcels.

Shanghai’s new home prices surged more than 30 per cent over the past year after the central government introduced a number of supportive home polices, including reducing interest rate and down payment requirements.

A new project located near the Jingan land king site, called Oasis Yabinli, was developed by China Vanke and is currently pricing at 90,000 per sq m.

Many developers are tapping leverage to snap up prime land because of the lower cost of funding amid ample liquidity
Lin Zhong, chairman of CIFI Holdings

“Land king” sites have mushroomed in China’s top tier and some second tier cities since the start of 2016.

Guangzhou, China’s fourth largest city, sold a land plot on Tuesday to private developer Agile Property, with the ultimate price about 35,000 yuan per sq m, a new record for the city.

“Many developers are tapping leverage to snap up prime land because of the lower cost of funding amid ample liquidity,” said Lin Zhong, chairman of Shanghai developer CIFI Holdings.

The company also joined the public auction for the Shanghai Jingan site.

“We believe that only when the future [sales] price is double the purchase cost can we make a reasonable return. The Shanghai plot [cost] is clearly beyond our scope,” he said.

Longfor properties, another developer that also bid for the Shanghai “land king” site, said the winner was “very brave”, adding that it would take a more cautious stance when the land market is overheated.

Longfor said it is seeking more opportunities in some provincial capital cities where the economy is strong but land prices are undervalued, such as Jinan in China’s northern Shandong province.

Research analyst Hong said the motivation behind chasing “land king” sites is the lack of good investment targets given the fluctuations in stock and currency markets. That has pushed developers and investors to swarm into top tier cities for land, as the investment is seen as “comparatively low risk”.

But CIFI’s Lin said land prices will return to a more rational situation soon, citing a central government authority warning earlier this year that increasing leverage was like “growing a tree in the air”, and that a high leverage ratio could lead to a financial crisis.