Developers in Beijing suburbs forced to go upmarket with new homes
Price management by local governments is hurting the less well off people it is intended to protect, say analysts
Beijing’s escalating home prices are spreading outwards from the city centre to its outer suburbs amid a scarcity of new, unbuilt parcels of land, forcing the neighbourhoods to go up market.
The latest example is a new project by Greenland Holding Corp in Daxing(大興) district outside the Southern Fifth Ring Road, which defines the southern perimeter of the city designed as a series of concentric squares.
Apartment units measuring 3,490 square metres (37,566 square feet) were on offer at a price range of between 73,356 yuan per sq m to 80,280 yuan per sq m (HK$8,425 per square foot), almost double the prices of existing homes in the neighbourhood. At 80,280 yuan per sq m, the priciest apartment also sets the record for the entire district.
Even so, that selling price is barely enough to give the developer a decent profit margin. Greenland bought the plot in February 2016 for a record 47,000 yuan per sq m, setting the bar for land parcels in the district. Property analysts said the parcel will need to be developed into a home at a sale price of at least 94,000 yuan per sq m to generate an industry standard profit margin of 20 per cent.
Developers compromise on prices because local governments routinely use “pre-sale permits” to micromanage new home prices, according to analysts familiar with the regulations.
Flats sold beyond the governments’ price tolerance, which itself is vague and changes all the time, cannot be guaranteed permits.
Similar situations have occurred in other districts outside fifth ring road, where after purchasing plots at high prices, developers have to rewrite their development plan, marketing strategy and targeted consumers to “go upmarket”.