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Developers buy prime land at hefty rates to ride boom

By Wang Ying (China Daily)
Updated: 2009-07-23 07:57

China's realty market saw land acquisitions at record prices in the past month.

Data from Centaline Property Agency has revealed that land reserves of China's 10 major property developers jumped 74 percent month-on-month in June. Vanke, the barometer of the real estate sector, acquired eight projects worth 4.703 billion yuan ($688.49 million) from Xiamen, Foshan, Anshan, Shanghai and Chongqing.

But this was only the tip of the iceberg. A new group of "land kings" has appeared in Beijing, Shanghai, Guangzhou and Shenzhen, which has led to an increase in land prices. These new land kings are mostly listed companies or are State-owned, said Lu Qilin, director of the Shanghai-based Uwin Real Estate Research Center.

State-owned developers purchased 60 percent of the 10-most expensive plots that were on sale. For example, a site in Beijing's Guangqumen area of Chaoyang district was auctioned for nearly 4 billion yuan in late June, or 14,000 yuan per sq m gross floor area, making it the most expensive plot in the capital and across the country. The winning bidder was a property subsidiary of State-owned Sinochem Group.

Just six days later, another piece of land in Beijing's outskirts (in Daxing district) was sold for more than 3 billion yuan to Greenland Group, a real estate company owned by the Shanghai municipal government.

"The property boom is coming and State-owned enterprises won't let go of the investment opportunities," an analyst who asked not to be named, told China Daily.

Figures from the National Bureau of Statistics show that in the first half of 2009, a total of 1.45 trillion yuan was invested into domestic property development, up 9.9 percent year-on-year. During the same period, money put into residential development totaled 1.02 trillion yuan, up 7.3 percent year-on-year.

"It's hard to define the comeback as another property bubble, but we can make sure that domestic realty makes a better recovery than expected," said the analyst.

Special Coverage: Housing in China Related readings:  Mainland real estate market back on growth track  Beware housing bubble  Luxury home sales growth robust in Q2  Property prices increase for four consecutive months

Apart from those well-heeled State magnates, listed companies also propped up the land-shopping spree. In May and June, Vanke invested 8 billion yuan for a total of 3.88 million sq m gross floor area. Just 40 minutes after Greenland acquired the land in Daxing, a nearby plot went to Poly Real Estate at a price of 1.63 billion yuan.

Although commercial property transactions dropped 7 percent in June (from May) in Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Chongqing, Chengdu and Hangzhou, the top 10 property developers' sales volume climbed by 2 percent to 3.36 million sq m.

"The augmented sales volume over the past months has greatly eased property developers' cash crunch, and also consumed their property reserves. It's natural for them to inject the sales revenue into the land market," said Lu.

"But if we scratch below the surface, we can find other motives behind their craze for land recently," added Lu.

According to Lu, when listed property companies buy new land, the market views such a purchase as positive. As a result, they benefit from a share price rally. For instance, after Vanke and Poly bought new land, both companies' shares soared: Vanke up 71.66 percent to close at 13.99 yuan yesterday, Gemdale up 64.41 percent to 17.74 yuan, and Poly up 26.8 percent to 29.05 yuan.

In addition, when all major developers buy land, they send the public a clear message: housing price will rise, if not skyrocket, again, said Hui Jianqiang, an analyst with Shanghai E-House Research Institute.

"They are returning the ball to the court of potential homebuyers. Buy now or later, it's a question," said Hui.