This Jiaxing Road site may have to wait a while to find a new owner
Shanghai authorities have detained executives at China Resources Land and China Overseas Land & Investment (COLI), after a government auction for a prime slice of residential land in Hongkou district aroused suspicion when all bids came in at the publicly announced reserve price.
The two state-owned developers, together with the country’s third largest developer by contracted sales, China Vanke, each placed matching offers on 31 March of RMB 3.43 billion ($480 million) for the 21,724 square metre (233,835 square foot) plot.
The lowball bids came after market analysts had expected the site, in one of Shanghai’s key planning areas near the North Bund, to be fiercely contested.
Developer Executives Detained
Before police detained the three executives suspected of conspiring to fix the bid price, COLI said it would jointly develop the land with Vanke and China Resources. COLI had been listed at the top of the three bidders in the government’s publicly available record of the auction, leading local Chinese media to report that the subsidiary of state-run giant China State Construction and Engineering Corporation had won the site.
On 8 April, Shanghai police detained Cui Shuai, the general manager of COLI’s Shanghai branch, while China Resources Land saw two of its executives apprehended – Chen Gang, the general manager of its East China business, and the company’s executive GM in Shanghai, Song Youyou.
COLI’s Cui Shuai was detained on 8 April following a Shanghai land sale suspected of being rigged
The three other developers that had enrolled in the auction – China Merchants Property Development, Greentown China Holdings, and Ping An Real Estate – are understood not to have placed bids.
Police have subsequently questioned representatives of some of the non-bidding developers, according to local Chinese media reports, and the local government has since updated its website to show that the land has not been awarded.
COLI, China Vanke, and China Resources have not made public announcements regarding the land sale, while the most recent land acquisition updates from the three developers do not feature the Shanghai site.
Fixing the Price on a Prime Slice of Shanghai
The land parcel in limbo is located on Jiaxing Road, near the intersection of Hailun Road and Zhoujiazui Road in Shanghai’s Hongkou district, which is undergoing a large-scale regeneration programme.
Known officially as HK271-01, the land parcel can yield a maximum of 54,310 square metres of housing by gross floor area, with units in the vicinity of the site currently priced at over RMB 100,000 per square metre.
Based on the contested bid price, the government would have sold the land for the equivalent of RMB 63,155 per square metre.
Facing a Property Downturn
The land sale scandal comes as the ongoing pandemic threatens to derail property sales across China, with all three of the companies involved in the Shanghai auction already suffering declining sales.
Just two days ago, China Resources Land said its contracted sales for March were just RMB 15.13 billion — down by 21 percent compared to the same month last year.
Just over a week before that, COLI announced that its sales had slumped 12 percent during the first quarter compared to the first three months of 2019, after its batch of new contracts fell to just RMB 59.7 billion during the period.
China Vanke saw its haul of signed contracts for the first quarter drop 8 percent to RMB 137.88 billion from last year’s RMB 149.44 billion, according to an announcement by the company on 2 April.
Waning interest in buying property has led some developers to offer big discounts to meet sales targets, as they race to service debt loads.
In February, China Evergrande – which has a debt pile of RMB 800 billion – was offering discounts of up to 25 percent on its projects.
Both China Vanke and China Resources Land have said falling profits will be a long-term trend in the residential sector that will affect future earnings growth.
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