The Chinese term "land king" is an appellation referring to the most expensive plot of land in a city. On June 1, a land parcel located in suburban Shanghai town Gucun was sold at 37,000 yuan /m2 in the auction, representing a premium of 300 percent. On June 2, land plots with prices of more than 30,000/m2 and 40,000/m2 were seen in Longhua New District, a suburban district of the southern Chinese city Shenzhen, and in Beijing’s suburb Haidian district and outer suburbs of Shunyi District and Yanqing County.
In terms of growth rate, the land price of Shenzhen’s Longhua District has almost quadrupled within just three years. In Beijing, the land parcels located in northern Haidian District has more than tripled within seven months, and the price of land king in the outer Yanqing County is three times that of prevailing housing price in adjacent area. All such data are far beyond the average land price and the price of land kings in 2009 and 2013, when the real estate market also experienced booms. And land kings during those periods were mostly located in downtown.
Based on historic land prices of the above areas, the hike of land price is well above that of the housing price. Industry insiders are even in the view that land prices in first tier cities are out of control. But who and what logic are there behind the soar of land price?
Fierce competition for land kings
The land market on June 2 was far from tranquil. On this day, Longhua, the cradle of Shenzhen’ land kings in recent years, have offered a new land parcel for auction. Though the municipal land authority adopted sealed bid in order to prevent the price from being pushed up in open ascending price auction, and prohibited presale of properties to be built on the land, property developers and capitals’ passion for the land still ran high.
19 property developers and the capitals behind them came to the salesroom. 18 handed in the bidding documents, and 1 gave up. Finally, a consortium consisted of Power Construction Corporation of China, Ltd. (601669.SH), a central SOE, and Guangzhou Fangrong Real Estate Co., Ltd., a subsidiary of China Jinmao Holdings Group Limited (00817.HK), which is also a company with central SOE background, won the bid. The consortium offered 8.29 billion yuan, or the floor price of 57,000 yuan/m2 for the land, far exceeding the bidding price of a local property developer China Merchant Shekou Holdings Co., Ltd. (001979.SZ), to make this land parcel a new land king in the region.
Almost at the same time, lot HD-0303-0071 located in the northern Haidian District in Beijing, which is overall intended for the construction of Zhongguancun environment protection science and technology park, finally fell in the hand of Longfor Properties Co. Ltd. (00960.HK) with a bidding price of 1.41 billion yuan, or the floor price of 30,200 yuan/m2, representing a premium of 107 percent.
Back on October 27, 2015, China Vanke Co., Ltd (000002.SZ; 02202.HK) won the bid for an adjacent area with 810 million yuan, or the floor price of 13,000 yuan /m2. It means that in just half a year, the land price of the land parcel in Haidian District had more than tripled. But in the meantime, housing price of the area didn’t see remarkable rise.
Subsequently, the Houshayu land parcel in Shunyi District, Beijing, was for transfer. And Yango Group Co., ltd. (000671.SZ) was the winning bidder. The total price it offered was 750 million yuan, or the floor price of 44,600 yuan /m2. Zhang Dawei, chief analyst with Centaline Property Agency Limited, estimated that the selling price is expected to surpass 100,000 yuan/m2 in the future.
While people exclaimed that the housing price of the suburban Shunyi District is to reach 100,000 yuan/ m2, something more surprising happened.
Yanqing County, the outer suburb of Beijing launched a land parcel for transfer, and was pursued by various well-known property developers such as Country Garden Holdings Co. Ltd. (02007.HK). Level-1 property developer Tianrun Chengze finally obtained the land with 1,042.5 million yuan, and the floor price is expected to be 31,000 yuan/m2, according to the estimation of Centaline Property, more than two times that of the prevailing hosing price of the area.
Beijing and Shenzhen seem to inwardly compete for faster growth rate in land price, both over that of real estate. Taking Longhua District of Shenzhen as an example, data shows that housing price of Longhua soared to 47,865 yuan/m2 in May 2016 from 10,000 yuan/m2 in 2007, with a growth of nearly five times, but the land price from 5,600 yuan/m2 to 57,000 yuan/m2 in the same period, with the growth of ten times. It means that growth rate of land price in Longhua is twice of that for housing price.
Based on situation in three large cities, Beijing, Shanghai and Shenzhen, the land price obviously accelerated the growth rate in the past two or three years, generally exceeding that of housing price. Only situation in Guangzhou was tolerable.
SOEs become main players in competing for land lots
What forces behind are pushing high the land price?
Centaline Property has collected information related to land kings of the first tier cities since this year, finding that state-owned assets and the central SOEs become the main forces in this round of competition for lands. The typical one is Cinda Real Estate Co., Ltd. (600657.SH), subsidiary of China Cinda Asset Management Co., Ltd. directly under the MOF.
According to data, Cinda Real Estate has won six land lots with high prices in the competitions since the second half year of 2015, including Binhu District of Hefei city, New Jiangwan City of Shanghai, Pingshan District of Shenzhen, Hangzhou CBD, Binjiang Olympic Sports Center of Hangzhou, Liufu land lot of Gu Village in Baoshan District of Shanghai. The total scale is 35.2 billion yuan.
The winner for Longhua land king is also a consortium of the central SOEs combined by various companies. Power Construction directly belongs to State-owned Assets Supervision and Administration Commission (SASAC). Guangzhou Fangrong Real Estate Co., Ltd. is a subsidiary of China Jinmao, and Sinochem Group directly controlled by the SASAC is the substantial shareholder of China Jinmao.
Up to May 31, national land market has 105 land lots with the total price at a very high level, and 52 ones are acquired by the SOEs; the total transaction amount records 178.58 billion yuan, accounting for around 54 percent, according to statistics data of research department in Centaline Property.
Cinda Real Esate, Shenzhen Overseas Chinese Town Co., Ltd. (000069.SZ), Power Construction, Luneng Group Co., Ltd., China Gezhouba Group Company Limited (600068.SH), China Railway Group Limited (601390.SH), Metallurgical Corporation Of China Ltd. (601618.SH) and etc. are main forces for the central SOEs to compete for land kings. Compared to private enterprises, the said ones are easier to gain massive funds with low costs.
Zhang believed that “land king” phenomenon is one of asset insufficiencies under low interest rate and plentiful funds; especially in the first and second tier cities, frequently emerged land kings have already been a trend.
Based on Fang Ling and Yi Peng of China real Estate Information Corporation when analyzing the reason of Cinda Real Estate competing for land kings, asset allocation is what China Cinda Asset Management actually needs most, asset insufficiencies become increasingly serious, the real estate industry is still booming, and core land lots in the first tier cities possess the largest appreciation potential.
Therefore, Cinda Real Estate “crazily” pursues for land kings, no matter whether to earn money or not at last. It has met the demands of its parent company for asset allocation, always laying foundation for main financial businesses.
However, an innominate real estate developer in Shenzhen pointed out that financial capitals without actual capability for operation and development will cause bubbles in the land price, but land price is not sure to positively change along with the housing price. Huge risk will be aroused, if the housing price cannot surpass the land price in the future.
Translated by Adam Zhang and Jelly Yi
Latest comments