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Questions raised over land price

THE land parcel where an apartment building under construction in Minhang District collapsed on Saturday was sold to its developer for well below the price other builders paid for plots in the same area at the same time, according to a document available online.

The 2003 transaction occurred at a time when developers were awarded land rights without the need for public bids, leaving builders that enjoyed "good relationships" with local governments well positioned to obtain a financial advantage. In this case, the land sold for about a third of what other developers paid for similar parcels.

The document, posted on the Website of the Shanghai Real Estate Appraisers Association, showed that privately owned Shanghai Meidu Real Estate Co paid 46 million yuan (US$6.7 million) for 42,342 square meters of land on October 10, 2003. The Lotus Riverside project called for a total floor area of up to 76,216 square meters, which meant the land cost was less than 604 yuan per square meter. The average price of flats in the building that collapsed was 14,297 yuan per square meter.

The document showed that Meidu's purchase price was far less than that paid by other developers for land nearby. For example, a 5,121-square-meter parcel in the same area sold in 2003 for 1,929 yuan per square meter, according to the document.

"When the deal was concluded, there was no real public bidding for land," said Xue Jian-xiong, an analyst at E-House (China) Holdings Ltd. "Developers had to bank on their relationships with governments to acquire land at better prices."

Before August 2004 when public auctions were instituted, local governments could direct selected developers to submit proposals detailing how much they would pay for land on offer and how they would develop it. The governments also determined the final winners.

Earlier media reports said that Meidu might have had a close relationship with the government of Meilong Town, where the land is located. Some reports even speculated that Meidu was under control of the local government, which did not offer a public explanation on how the land award was made.


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