China property

Property developers undeterred by Beijing’s market-cooling auction restrictions

PUBLISHED : Thursday, 17 November, 2016, 7:39pm
UPDATED : Thursday, 17 November, 2016, 10:18pm

Property developers, desperate to acquire land for their projects, have steamrolled a three-step process that Beijing’s government put in to cap land costs, in a sign that the new rules are inadequate to rein in runaway housing prices in the Chinese capital.

Only one of four pieces of land put up for auction this week in Beijing found a winner, as bids from about 20 developers blew threw the first two stages of the process within minutes.

On Thursday, a 183,300 square meter (1.97 million square feet) parcel of land in Haidian district sold for 5.76 billion yuan (HK$6.5 billion), when the sole bidding consortium of three developers pledged to keep 100 per cent of the apartment units built on the land for rent only, acceding to the government’s plan to keep housing affordable.

The average price of newly built residential buildings have soared 28 per cent in Beijing in the past year, according to the National Bureau of Statistics. There’s a shortage of land suitable for construction, as the government -- the ultimate land owner in China -- has sold only 10 parcels this year before this week’s auctions.

Under the Beijing municipal government’s September 30 rules for land auctions, the winning bid must go through a three-step process.

The first step caps the maximum bidding price in place of the former winner-takes-all approach; the second step awards the winning bid to the developer willing to offer the largest share of space for rent. If the two steps still fail to produce a single winner, the final stage awards the land based on the quality of the apartments built in a closed door judgement.

That was the case on Wednesday, when a piece of land measuring 83,550 square metres in Haidian reached the first cap within minutes with a company’s 5 billion yuan bid.

Poly Real Estate, the Longfor-Beijing Capital Development Holding consortium, Greenland Holding Group and China Vanke Co. each offered to devote 100 per cent of the Haidian parcel for rent during the second stage of the auction.

That drove the auction into the third and final stage, requiring developers to submit their construction and development plans for judgement on November 26.

A similar process took place at the auction for a second parcel in Haidian, when four developers went through the first two stages of the auction, touching the maximum price of 5.9 billion yuan without a clear winner. They now have to enter the final phase and compete based on the quality of their building standards.

“The competition is so bloody that developers are pushing themselves to the max,” said Centaline’s Beijing research analyst Kang Peng. “Perhaps the government didn’t expect such outcome.”

A Thursday auction produced a partial outcome when a Haidian parcel found a winning consortium. A second plot in Daxing district measuring 51,970 square meters failed to find a winner, even as seven bidders were willing to hold all the space for rent.

Tao Hongbing, a vice-president of Homelink, a Beijing agency, said the results indicate the government’s plan may have backfired.

The government may have to further fine tune the rules in the subsequent auctions, he said.