2011-02-15 11:05

Tightening measures fail to dampen developers' enthusiasm for property

SHANGHAI - Administrative restrictions and monetary tightening measures don't appear to have undermined the enthusiasm of property developers' for lavish land purchases.

A new local record was established during a bid for a plot on the city's Chongming Island, smashing the previous record on the island, which was set just two weeks before.

Five pieces of land with an aggregate area of 230,000 square meters (sq m) sold at auction on Saturday for 2.37 billion yuan ($359.55 million). Among them, one plot located on Chongming Island, and designated for residential properties, sold for one billion yuan, more than 115 percent the initial bidding price.

Two weeks ago, a similar plot on the island was auctioned at 772 million yuan, or 6,073.5 yuan per sq m of gross floor area, by the Shanghai-based property developer Greenland Group. At the time the sale was a record for both total land price and for a single square meter of gross floor area.

According to Fu Qi, director of the Shanghai division of the China Real Estate Information Corporation, the unit price of 6,450 yuan was reasonable because the residential property price in a neighboring area had risen to 12,000 yuan per sq m.

"Land price accounts for about 50 percent of the cost of a newly built residential property, so the developer can still make a profit from this aggressive bidding," Fu said.

"It takes nearly two years to complete a residential property. So even if Chongming's housing price is unchanged when the apartments are finished, the developer can still make money," he explained.

"Chongming Island is not usually in the spotlight of Shanghai's housing boom, and land transactions there are not common. Therefore, the bidding is not typical," said Lu Qilin, deputy director of the Uwin Real Estate Research Center.

Another piece of land for residential development located in Pudong New Area was auctioned at 661.1 million yuan, or 21,362 yuan per sq m of gross floor area.

"The Pudong land is obviously overvalued, and the developer has to sell at 40,000 yuan per sq m to break even after the completion. But the average property price in that area is about 20,000 yuan (per sq m)," said Lu.

To rein in rampant housing speculation, the State Council imposed eight new tightening regulations on Jan 26, including a rise in the downpayment for second homebuyers to 60 percent of the full property price from the previously required 50 percent.

In the remote town of Guangshan in Henan province, the average price skyrocketed to more than 3,000 yuan per sq m recently, soaring nearly four times compared with the 2006 figure, according to a report by the China Securities Journal. However, the average income in Guangshan is 6,998 yuan annually.

Even the draft plan of an apartment can make thousands of yuan simply by changing hands in Guangshan.

"This is a very dangerous trend, as many of the draft plans have not started relocation yet. Once the developers run out of money, there is nowhere to reclaim the investment made," said one local property developer quoted in the China Securities Journal.