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October 1, 2009

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Home » Business » Real Estate

Local land sale busts recently set price mark

GREENLAND Group agreed yesterday to pay 7.25 billion yuan (US$1.07 billion) for a prime Shanghai plot - making it China's most expensive piece of land, in the latest sign that developers are optimistic despite stagnant sales.

The acquisition price broke a record set just three weeks ago by China Overseas Land & Investment, which spent 7 billion yuan for a parcel in the city's Changfeng area.

The gross-floor-area price for the latest plot, located on Longhua Road with a view of the Huangpu River, was 27,231 yuan per square meter, a level that could boost operational risks for Greenland amid market uncertainties, analysts said.

Shanghai-based Greenland said in a statement that the price of the land, which will be used for commercial, office and residential development, was reasonable considering its prime location and the city's economic growth.

The deal also fits well with Greenland's business strategy. The company has two other projects in nearby areas that will allow for synergies in development, according to the statement.

"We can't call the price high if we simply compare it with existing projects," said Luo Mingwei, a Zhongtian Investment Consulting Co analyst. "The question is whether the price can be maintained in two to three years."

Industry insiders said new residential projects in the same area sell for between 35,000 yuan and 40,000 yuan per square meter. Greenland may ask for more than 45,000 yuan per square meter for the first phase of the project, Luo said.

After posting a constant monthly rise since March, transaction volumes for Shanghai's new and existing homes started to fall in August and prices flattened. Analysts expect housing prices to drop slightly in the fourth quarter before rebounding early next year.

"It's understandable that developers like China Overseas and Greenland are investing for the future," said Zhu Fuquan, a West China Securities Co analyst. "However, their fate depends largely on government policy, and the biggest challenge is that people tend to stay on the sidelines when there are uncertainties."

China is maintaining its "moderately loose" monetary policy this year, which has been spurring developers to acquire land for future projects. But economists believe tightening may arrive early next year as consumer prices pick up again.

"For the long term, prime-location housing will still be pursued due to the country's growing individual wealth," said Lin Wen, an investment consultant at the Bank of China. "But in the near term, developers may face pressure in cash flow, and only stronger players are likely to survive."


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