The Chinese government’s tighter financing constraints have not slowed down the largest real estate developer controlled by the Shanghai city government, as Greenland Group continued to expand its land bank last week with the acquisition of a pair of land parcels in the scenic city of Hangzhou for a combined RMB 1.54 billion ($224 million).
China’s sixth largest developer in terms of sales volume won the two mixed-use sites from the Hangzhou Lin’an district government’s land auction last week at an average price of RMB 6,540 ($952) per square metre. The parcels are located next to each other within the Qingshan Lake Technology Park in Lin’an, a western suburb of the city, with easy access to metro lines, freeways and the Xiaoshan International Airport.
The pair of land acquisitions in one of China’s wealthiest cities comes as government restrictions on lending have reduced access to credit for all but the largest developers, and demand suppression measures have raised risk levels in the country’s real estate industry.
Buying a Pair of High Tech Projects
According to public records for the land tender, the first of Greenland’s new prizes, labelled as High-Tech Unit 07-B/R-02, is approved for construction of up to 58,800 square metres of space, at least 25 percent of which is required to be developed for commercial tenants. The site amounts to 29,000 square metres of land area and was purchased for RMB 384 million ($55.91 million).
Greenland bought the second portion of the site, High-Tech Unit 07-B/R-01, for RMB1.15 billion and with it the rights to develop 176,1000 square metres of space on the 88,000 square metre site.
The acquisition was Greenland’s latest expansion of its land bank this year, as it acquired more than seven times its site buys in the first half of 2018, compared to the same period last year.
In last month alone, the Shanghai-based Fortune 500 company added 10 more plots to its reserve, spending a total of RMB 5.9 billion ($859 million). The sites, spread across China’s Sichuan, Shanxi, Zhejiang, Jiangsu, Henan and Anhui provinces cover an aggregate land area of 1.68 million square metres and could yield up to 3.36 million square metres of real estate.
Reduced Liquidity Slows Land Buys
As China’s real estate industry faces reduced liquidity and thinning margins due to a prolonged tightening of government policy and a weaker macroeconomic environment, many major developers including state-owned China Overseas Land & Investment and CIFI Holdings have slowed their land purchases.
Research from Chinese investment bank CICC indicated the proportion of failed auctions climbed to 9.4 percent in the first three weeks of August, compared to 7.3 percent over the whole of July, reported Reuters.
Shrinking interest in taking on new real estate projects is also reflected in slowing growth in real estate investment on the mainland. Investment in the sector grew by 9.2 percent in August, according to figures from China’s National Bureau of Statistics, slowing from 13.2 percent year on year in July.
Big Players Dominate Land Sale Scene
This slow-down, much of which is driven by policy measures put in place last year to ensure housing affordability is creating a “wait-and-see” attitude among many smaller developers who are struggling with less preferential lending rates and other market barriers. While the less-connected players stay away from site auctions, Greenland has led the race of land acquisition in 2018, achieving year on year growth of 728 percent in terms of land area in the first half of the year.
The next fastest growth was achieved by Yango Holdings, which boosted its land buys at a 595 percent rate, while state-owned COFCO’s land purchases grew by 286 percent.
In the first half of this year, Greenland spent RMB 36 billion in purchasing new parcels, adding 20.22 million square metres to its land reserve, compared to 2.44 million square metres in the same period last year, according to data provided by real estate services company E-House China.
“The land market is regaining its senses right now with generally lower (land sale) premiums. As local governments release more land to tame property prices, the developers are given more choices. Greenland’s strategy is to go with the market; it will grab the opportunity wherever it appears,” a source familiar with the transaction told the local media.
The company may also be seizing a window of opportunity as economists and developers now expect land purchases could tick up in the fourth quarter. “After the drop in bidder numbers and land premiums, there should be (buying) opportunities in the second half,” Reuters quoted China Overseas Land chairman and CEO Yan Jianguo as saying at a recent earnings conference.