Shanghai’s New Land King Ready to Sell Zhabei Homes at RMB160k/SQM

A little-known developer made a big splash in Shanghai this week by paying the highest price ever for land in China’s most expensive city.

Fujian-based Ronshine China Holdings is China’s new land king after beating out 17 rival bidders to pay RMB 100,000 ($15,122) per buildable square metre for a site in Jing’An district in central Shanghai.

The record-setting bid of RMB 11 billion ($1.66 billion) for the site on Zhongxing Road is the latest blockbuster Shanghai land deal this year, as developers fight to the death to gain access to sites in what is seen as one of the country’s few “can’t miss” real estate markets.

Fujian Developer Joins Shanghai Land Rush

Ronshine, which raised nearly $1.89 billion through its January IPO on the Hong Kong exchange, will need to sell homes on the site in what was part of Zhabei district until it was absorbed into Jing’An last year for an estimated RMB 160,000 per square metre to make a profit. After allowing for government requirements for incorporating affordable housing and rental units into new residential developments, Ronshine’s cost per square metre for its piece of Shanghai downtown works out to an estimated RMB 143,000 per square metre of buildable area to be put on the open market.

However, the daring bid appears to be part of a trend among developers desperate to gain a toe-hold in the Shanghai market.

Just over one month ago, Beijing-based COFCO Property Investment agreed to pay RMB 2.44 billion for a plot of residential land in Shanghai’s Pudong district, paying 235 percent over the auction minimum to secure the suburban site. COFCO’s July record-breaker was preceded in June by state-backed home builder Cinda Real Estate purchasing a plot of land in Shanghai’s Baoshan district for RMB 5.8 billion ($870 million) — a 303 percent premium over the auction minimum.

In all, the value of land sold in Shanghai totaled RMB 50.6 billion ($7.5 billion) in the first six months of this year with half of the plots sold fetching premiums double the auction minimums, underscoring the demand for land in China’s first-tier cities.

Paying Extra to Get Downtown

The Zhongxing Road site, which sits near a metro station just 3.3 kilometres (2 miles) from People’s Square is the first residential land to be sold within Shanghai’s first ring road – a marker of the city’s core area – since 2004, according to an account in the South China Morning Post.

Shanghai’s new home prices have risen more than 30 percent in the last year as investors find pathways to overseas investment blocked and a flood of credit becomes trapped within the domestic economy.

Ronshine’s record bid places significant pressure on the developer, however, and requires that Shanghai’s housing market continues to grow at least like it has within the last year. Soon to be completed units at China Vanke’s Oasis Yabinli project, just over one kilometre east of the Zhongxing Road project, are currently selling for RMB 90,000 per square metre.

Still, Ronshine is not alone in its faith in Shanghai’s home market.

Hong Kong-listed Future Land Development announced early this month that it plans to sell high-end units at its new project in Shanghai’s Hongkou district for RMB 120,000 per square meter, in a location with less public transport access than Ronshine’s new site. Future Land’s Hongkou plans project that the developer will be able to charge 20 percent beyond current market rates in the area when it starts selling units next year.