Concrete Analysis

China’s heated land market is reaching boiling point

PUBLISHED : Tuesday, 07 March, 2017, 3:03pm
UPDATED : Tuesday, 07 March, 2017, 7:48pm

Land sales for 2017 have just begun in China and it is interesting to review the performance of these initial land sales in various cities amid the government’s tightened policies implemented to cool off sizzling land prices.

In many cities, the land market is red hot and reaching their peaks while the competition for limited land is fierce.

For instance, at one auction in Hefei’s Binhu district, 14.77 billion yuan (US$2.1 billion) in total was collected with premiums at four of the seven parcels reaching more than 200 per cent and one exceeding 300 per cent.

Despite curbs on land sales such as land price limitation and circuit breaker, the results of land sales in cities including Nanjing, Hefei, Foshan and Ningbo as well as some key parcels in Zhengzhou and Chengdu are a measure of the enthusiasm of developers.

At the first land auction in Nanjing on January 12, two parcels were popular with developers. One, G90 in Jiangning Binjiang district was sold at 11,077 yuan per square metre, one of the highest transaction prices on a per square metre basis in the city.

In Hefei the next day, seven sites in Xinzhan district sold for a total of 7.1 billion yuan, with premiums at several parcels coming to more than 100 per cent. Similarly, the price of parcels in Foshan and Ningbo also touched district highs.

However, some cities are starting to see the market cooling down, where parcels are sold at their base prices with high premiums, high total prices and high average prices nowhere to be seen. This is evidence that the government’s policy adjustments are taking effect.

Land markets in Shanghai, Shenzhen, Qingdao and Wuxi were forced to cool down, which was largely due to adjustment in the structure of the land to be sold in response to the call for policy action from the government.

Land auctions in the major cities are where developers are still competing, followed by some key parcels in second-tier capital cities

For example, take the land sales in Baoshan district and Luojing Town. These both proved popular among developers with one selling at a 57 per cent premium, while the other one was sold at a little more than 3 per cent above its starting price.

Similarly, Shenzhen’s first land auction saw the release of a number of low-profile sites. The three sites – two industrial and one commercial – were all sold at their base prices on January 5.

In Wuxi’s first land auction, a site earmarked for a five-star hotel garnered few responses amid a market environment of excess supply, a situation that is echoed in Qingdao.

In Qingdao, the supply of land purely for homes has decreased to a large extent. In Jimo city, north of Qingdao, three of five parcels were marked for commercial use and two for residential/commercial land.

It can be seen from the above that land auctions in the major cities are where developers are still competing, followed by some key parcels in second-tier capital cities.

For instance, two business and financial sites in the core area of Shijiazhuang Zhengding New District in Hebei were sold at premiums of more than 200 per cent.

So, in the wake of such a market environment, what strategies should developers pursue?

We suggest developers follow the pace of government planning and seize opportunities in comprehensive urban projects, cooperating with the Government in the construction of these large projects such as developing industrial districts and distinctive towns which in turn gives them access to the businesses of primary land development, agent construction and land operation as well as building their land banks.

This year, 2017, will be one of opportunities and challenges.

On one hand, policy curbs are leaving developers with a dilemma: either avoid taking parcels with high total prices and premium rates or wait for the land market to cool off so that when prices fall, they can selectively increase their land reserve.

David Hong is head of research at China Real Estate Information Corp