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Cracks in the crackdown: housing market remains hot
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SHANGHAI’S toughest-ever attempt to cool an overheating housing market seems to be losing its muscle as a recent land-buying frenzy among real estate developers spills over into home-buying mania among consumers.
Last month in Shanghai, developers paid a total of 18.7 billion yuan (US$2.83 billion) for 10 plots of land with the equivalent area of about 65 football fields. That was a 13-fold surge from a year earlier.
About three months ago, the government tried to quell the market zeal by raising the down payment for second-home mortgages and tightening restrictions on home sales to city dwellers without residency permits.
But nothing seems to stop the dizzying rise in prices in the city.
New home sales in May, excluding government-subsidized affordable housing, rebounded slightly to an aggregate 988,000 square meters, with the average cost of the homes hitting a record 36,700 yuan per square meter, according to Shanghai Homelink Real Estate Agency Co.
“The recovery in sentiment was mainly fueled by an overheated land market,” said Lu Wenxi, a senior research manager at Shanghai Centaline Property Consultants Co. “And I don’t expect that situation to change in the short run.”
The same buying fever infected the existing home market. The average price of pre-owned houses rose 6.9 percent to 27,500 yuan per square meter last month, also a record in Shanghai. By transaction volume, about 19,900 existing homes were sold across the city, up 14.1 percent from April, when sales plunged more than 60 percent on the heels of the government crackdown.
Lu said real estate developers are grabbing up any land they can in outlying areas, ambitiously enlarging their reserves to capture the future prospects of urban sprawl.
At a land auction on May 11 — the first since the adoption of more restrictive policies — Xiangyu Real Estate, Gree Real Estate and Sunac China each paid more than double the floor price for residential parcels in the outlying areas of Fengxian and Songjiang.
A week later, land purchases took on an even crazier twist when Poly Real Estate fended off a challenge from more than 30 other developers to secure a residential plot on the fringes of the Pudong New Area.
The company’s successful bid of 5.45 billion yuan for a 69,433-square-meter plot of land took analysts by surprise. The site in the outlying town of Zhoupu was the first purely residential development plot offered in Pudong this year.
Surging prices
Poly’s bid equated to 43,607 yuan per square meter of gross floor area — almost four times the asking price. Furthermore, the actual price was even higher because the local land authority requires 5 percent of homes built on such sites to be turned over to the government for use as affordable housing. The developer is also obliged to hold on to 15 percent of the stock — designated as lease-only — for 70 years. That, consequently, will leave Poly just 80 percent of the properties on the site to be released to the open market.
“This was an irrationally high price for a residential plot located beyond the Outer Ring Road and not easily accessible by Metro,” said Lu Qilin, director of research at Shanghai Homelink. “With such high land costs, homes there could well sell for about 80,000 yuan per square meter, or the developer wouldn’t be able to make a fair profit.”
The last time a residential piece sold in Zhoupu, back in September 2014, the gross floor area price was just 19,000 yuan per square meter.
As June unfolded, the land-buying frenzy showed no signs of price fatigue. Cinda Real Estate this month paid the highest premium so far this year — over 5.8 billion yuan — for a residential plot in Shanghai’s Baoshan District, beating off challenges from more than 20 rival bidders.
The company paid a premium of 303 percent to the reserve price for the 106,400-square-meter site in the outlying Gucun area.
Cinda’s bid was equivalent to about 37,000 yuan per square meter of gross floor area. Costing in government requirements, that price came in at about 48,000 yuan per square meter.
“Prices paid for these residential plots are either close to or have already exceeded home prices in the neighborhood, a strong indicator that home prices will probably continue to head north,” Lu said.
The 10 parcels of land sold in May, which included six for pure housing development, totaled 472,000 square meters, an increase of 389 percent from the same period a year earlier, according to Homelink.
“Developer interest in residential plots in first-tier cities like Shanghai shows no sign of abating,” Lu said. “On the other hand, the crazy prices developers are willing to pay also reflect the tight supply of quality parcels in big cities where housing demand remains robust.”
The Chinese Academy of Social Sciences took a look at the situation in a recently released report. It predicted that home prices in first-tier and selected second-tier cities will continue to rise this year, with those in the second-tier cities hitting records.
Investment in real estate development also will rebound this year, pushing land prices higher, the academy said.
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