While residents of Nanjing are accustomed to looking up to see Qixia Mountain or to check out the region’s fantastic foliage during the fall, they will need to keep gazing upwards to catch a glimpse of the city’s skyrocketing land prices.
A four-day land auction took place last week with local government putting up 27 land parcels for sale. A total of 18 of these plots brought in a staggering RMB 40.5 billion ($6.07 billion). This figure includes Greenland’s RMB 8.06 billion ($1.19 billion) purchase of a land plot in Nanjing’s Gulou district that saw the developer crowned the new land king in the capital of eastern China’s Jiangsu province.
The surge in land sales came after Nanjing introduced a land price cap in May to help rein in surging site prices after 13 of the 50 most expensive land sales in China took place in the city between January and May of this year.
The restrictive measures did not stop Singapore-listed Yanlord Land, China Merchants Property Development and Poly Real Estate Group from partnering to buy their own plot in Gulou district, which fronts onto the Yangtze River, for RMB 4.8 billion ($719 million) in June.
Hot Home Prices Attract Developers to Nanjing
Mainland developers have been warming up to second tier cities such as Nanjing this year as the country’s real estate recovery spreads beyond China’s first tier cities. According to data from the National Bureau of Statistics, home prices in Nanjing, including government subsidized housing, have risen 36.7 percent in the last 12 months.
Home prices in eastern China’s second largest city have now risen 17 months in a row, thanks in part to the government’s easing measures that were designed to reduce the inventory of unsold homes in second tier locations. However, some analysts are concerned that these corrective policies are now causing wealthy second-tier cities like Nanjing to overheat.
“Nanjing doesn’t have an inventory problem but the government took an one-size-fits-all approach which led to an overheated market,” Luo Hao, research head at Centaline Property in Nanjing, stated.
Nanjing Far From a Sure Thing
In August, the average price per square metre for a new home in Nanjing was RMB 18,913 ($2,835), according to data from the China Real Estate Index. While this is higher than the nationwide average of RMB 12,270 ($1,838) per square metre, it’s still significantly less than what new homes are fetching in tier one cities like Shanghai and Shenzhen.
To help cool down the market, the local government in Nanjing last month increased down-payment requirements for some buyers of second homes to 50 percent, up from 45 percent, last month. The move did not dissuade developers from spending big during this most recent land auction as they are gambling on home prices continuing their upward trend.
“Developers turned to second-tier cities like Nanjing when land supply became scarce in top cities like Shanghai,” Xia Dan, a senior researcher at Bank of Communications, told the SCMP. “Such zeal to vie for the [most expensive property] could be problematic if home prices started to fall. It could be very ugly.”