Some developers are eager for sites even in Shanghai’s distant districts
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 fetching premiums double the auction minimums, underscoring the demand for land in China’s first-tier cities.
Local service provider Homelink Real Estate Agency reported that 30 parcels of land covering 1.28 million square meters were sold in the first half of 2016 and despite the value of sales falling 10.4 percent from last year, premiums on 15 of the plots sold were 100 percent or more, according to a report from Shanghai Daily.
Two-thirds of the parcels were designated purely for residential purposes and these averaged a 158.2 percent premium compared to 17.9 percent mark-ups for land directed towards commercial use.
Developers Compete for Any Site with a Shanghai Address
Director of research at Homelink Lu Qilin highlighted the robust appetite from developers for residential plots even in suburban locations. Mainland builders have been on a buying spree in Shanghai’s outermost districts, as companies compete for even the most distant sites within the city’s 6,340.5 square kilometre (2,448 square mile) area.
Recently Beijing-based COFCO Property Investment purchased a residential plot in Pudong for RMB 2.44 billion ($368 million), a 235 percent premium over the reserve price and marks the second-highest paid this year.
Shanghai-listed Cinda Real Estate made headlines last month outbidding 20 rivals for land in the city’s Baoshan district for RMB 5.8 billion ($870 million) representing a premium of 303 percent.
Land Costs Outrun Price of Finished Homes
As with similar deals, land costs often exceed prices paid for housing in the surrounding area and the actual costs per square meter end up higher due to government regulation. Lu states, “In order to make a fair profit, developers have to build medium to high-end projects on these costly sites even though many of them are located in outlying areas and that would probably mean home prices will continue to rise in the city.”
In its report, Homelink cited the case of Guangzhou-based KWG Property Holdings Ltd buying a residential plot in Shanghai’s Songjiang district, for an average RMB 39,073 per square meter.
The agency estimated that KWG’s actual cost per square metre of built area for the project would reach approximately RMB 41,100, after considering a government mandate requiring that five percent of homes built on the site to be provided as affordable housing. Data from the Shanghai property agency showed that current prices for finished housing in the area did not exceed RMB 37,000 per square meter.
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