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Robust sentiment priced in at plot auction
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The higher-than-expected price paid for a land plot at an auction in Shanghai indicates continued strong sentiment in the city’s land market.
An auction for a plot of residential land in southern Minhang District beat market expectations again yesterday after a developer agreed to pay a price above that for homes in the same neighborhood.
Radiance Property Holdings Ltd beat around 20 rivals to acquire the parcel near Xinzhuang Metro Station for 2.815 billion yuan (US$437 million), or 43,790 yuan per square meter on average. The price paid was a premium of 143 percent over its starting price.
But the real cost of the land exceeded 47,000 yuan per square meter after excluding 7 percent of its developable area for affordable housing as required by the local land authority.
“A land piece in Xinzhuang area designated solely for residential development is a rare offer ... and that helped explain the fierce competition in the land auction,” said Lu Qilin, director of research at Shanghai Homelink Real Estate Agency Co. “Previously-owned homes in this area currently sell for an average 42,000 yuan per square meter while new projects near to the parcel are asking for no more than 45,000 yuan per square meter.”
At over 47,000 yuan per square meter, Radiance Property will have to sell homes for 69,000 yuan per square meter and above to make a fair profit, observers said.
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