Cinda Pays 303% Over Opening Price to Buy Shanghai Land at Auction

Cinda Real Estate established itself as China’s new land king this week by paying RMB 5.8 billion ($870 million) for a plot of land in Shanghai’s Baoshan district.

The land purchase marked the third time in less than seven months that the property subsidiary of China Cinda Asset Management had paid over RMB 5 billion for a development site, and the price paid represented a 303 percent premium over the auction reserve.

The price paid by Cinda, which outbid 20 rival bidders at the auction, underscores the increased competition for land in China’s major cities, even at a time when some analysts are warning of a fresh round of market cooling measures from the government.

Betting That Baoshan Homes Will Sell for RMB 80k a Square Metre

Shanghai-listed Cinda paid the equivalent of RMB 37,000 per square metre of buildable area for the 106,400 square metre site in Baoshan’s Gucun area, however, government restrictions made the economics of the deal even costlier to the developer.

To keep with affordable housing policies, Cinda will need to set aside 5 percent of the homes built for the government’s affordable housing program, and must also ensure that 15 percent of the units are held for leasing, rather than sold. Analysts estimate that this drives the cost per square metre of buildable area for the project closer to RMB 48,000.

Homes in the Gucun area currently sell for an average of RMB 46,000 per square metre, according to agency figures. In order to turn a standard profit on this most recent site, however, Cinda would need to sell units in the property for around RMB 80,000 per square metre, according to China property development analysts who spoke with Mingtiandi.

Cinda Now China’s Land King

Cinda, which is not among China’s top ten developers, has nonetheless been in its biggest winner of trophy development sites over the last several months.

Just last week the state-backed home builder set a new record for land purchases nationwide by fending off 17 other bidders to pay RMB 12.3 billion ($1.87 billion) for a 570,000 square metre mixed-use site in Hangzhou. China Vanke, which had originally been a partner in that bid, abandoned its involvement after the price exceeded its set budget.

That May deal was preceded in November last year by Cinda’s purchase of a 148,500 square metre site in Shanghai’s Yangpu district for RMB 7.3 billion (US$1.1 billion).

While China’s average home prices have risen for 10 straight months, according to a recently conducted survey, government officials have also shown increasing resolve to clamp down on home price inflation, particularly in large cities such as Shanghai.

“We believe tightening in policy measures could be targeted at cities with strong price growth, but will not be applied uniformly nationwide,” Moody’s Investors Service analyst Franco Leung noted this week. Shanghai home prices rose 34.2 percent in April compared to the same month last year, according to official government figures. Already this year city authorities in the country’s commercial centre have raised down-payment requirements and raised fees involve in home purchase transactions to help cool down an overheated market.