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May 19, 2016

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Poly pays big premium for Pudong plot

POLY Real Estate held off the challenge of dozens of other developers yesterday to secure a residential plot in the Pudong New Area of Shanghai.

The company made a successful bid of 5.45 billion yuan (US$834 million) for the 69,433-square-meter site in the outlying town of Zhoupu.

More than 30 companies took part in the auction for what was the first purely residential development plot to be offered in Pudong this year.

Poly’s bid equated to 43,607 yuan per square meter of gross floor area, or almost four times the asking price. Furthermore, due to the terms under which residential land is sold in the city, the actual GFA price was 55,707 yuan per square meter.

Shanghai’s land authority requires 5 percent of the homes built on such sites to be handed over to the government for use as affordable housing, while developers are obliged to hold on to 15 percent of the stock — designated as lease-only — for 70 years. That will leave Poly just 80 percent of the properties for release to the open market.

“This is an irrationally high price for a residential plot located beyond the Outer Ring Road, and not easily accessible by the Metro,” said Lu Qilin, a director at Shanghai Homelink Real Estate Agency Co.

“With such a high land cost, we expect homes on this plot to sell for about 80,000 yuan per square meter, or the developer won’t make a fair profit.”

The last residential plots to be sold in Zhoupu, in September 2014, had a GFA price of about 19,000 yuan per square meter, according to Homelink’s figures.

Last week, developers paid more than twice the reserve prices for three residential plots in the outlying areas of Sijing, Songjiang District, and Nanqiao New City, Fengxian District. The deals surprised analysts as the government had earlier moved to cool the city’s overheated property market.

“The aggressive approach ... reflects the ever shrinking quality of land available, and the ever rising threshold developers are facing,” said Lu Wenxi from Shanghai Centaline.


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