Songjiang district is some 30 kilometres from the Shanghai city centre
A crowd of 30 mainland developers cast aside concerns of a government clampdown on Shanghai housing sales last week to stoke a bidding war for three pieces of land in the city’s suburbs, which ultimately sold for well above their asking prices.
At a public auction on May 12th, Gree Real Estate and Sunac China both picked up sites in Songjiang district’s Sijing town, and Fujian-based Xiangyu Real Estate grabbed a site in Fengxiang district. All three developers paid more than double the asking prices for their sites, located some 30 km away from the centre of Shanghai.
Hong Kong-listed Sunac paid RMB 38,291 per square metre of built area for its 43,600 square metre Sonjiang project, up 111 percent from the auction minimum. This month the average price of homes in Shanghai reached RMB 40,000 per square metre for the first time, according to agency data.
The most recent piece of land to be auctioned in Songjiang before this latest sale went for RMB 20,000 per square metre back in October 2015.
Developers Not Scared Off By Latest Purchase Restrictions
Sunac’s Sun Hongbin finally gets his hands on a Shanghai site
The developers’ purchases seem to contradict a downward turn in real estate sales in Shanghai in April and indicate a faith in long-term demand for housing in China’s commercial centre. April residential transactions and prices were down 56.1 percent and 1.9 percent, respectively compared to May, with the declines widely attributed to the introduction of purchase restrictions by the Shanghai city government at the end of March.
And the high prices paid seemed at odds with the rising concerns about profitability and solvency within the residential development sector in general. Earlier this month, investment bank Goldman Sachs, became the latest voice to warn investors to move out of developers’ stocks amid growing concerns about the prospect of future policy tightening and worries about mainland builders’ ability to service their debts.
But the 20 firms clamouring for land parcels last week showed their confidence in the long-term returns on holding land in Shanghai.
Tighter Land Supply Pushing Up Prices
Fengxian district is far enough away from the centre of Shanghai to be home to the city’s man-made beach
Upward pressure on land prices has grown amid tighter supply in Shanghai. Fewer land plots have been scheduled for sale this year — total land at auction in during the first quarter was down 72.9 percent compared to the same period last year, in part because of weaker demand from developers still wary from carrying heavy inventories of unsold homes through the 2015 downturn.
But tighter supply in Shanghai is also a long-term trend as land offerings have declined notably during the past five years from 11.2 million square metres in 2010 to 6.6 million square metres in 2015. This reduction in supply of new land, along with the city’s still robust economy have combined to make Shanghai land some of the most expensive in China
Future prospects for land price growth look strong. The Shanghai city government has said it will maintain a supply target of 6 million square metres per year for the next five years, which would represent 9 percent over the supply put onto the market in 2015.
Shanghai Goes Suburban
And betting on suburban areas like Songjiang and Fengxian may also be a smart strategy.
With Shanghai housing already among the most expensive in the world, middle-class homebuyers will increasingly be driven to suburban locations in their home searches.
Home prices in Songjiang where two of the plots sold last week were located, averaged RMB 30,381 per square metre in April, according to Centaline, compared with RMB 103,426 per square metre in centrally located Jing An. With Shanghai’s metro system improving transport links between distant suburbs and the city centre, developers may be able to market units in their suburban developments even after paying double for the land.
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