Land short­ages, high prices see de­vel­op­ers look­ing fur­ther afield

China Daily (Hong Kong) - - BUSINESS - By WU YIYAO in Shang­hai wuyiyao@chi­

The gap be­tween lim­ited sup­ply and high de­mand for de­vel­opable land in core cities has pushed up the price by 50 per­cent, dent­ing de­vel­op­ers’ profit mar­gins and driv­ing de­vel­op­ers and in­vestors to seek land in sub­urbs and low­ertier cities.

A re­search note from Cen­taline Prop­erty Ltd said the top 40 de­vel­op­ers, by sales rev­enue, in China have spent a com­bined 1.01 tril­lion yuan ($1,467.74 bil­lion) pur­chas­ing land be­tween Jan 1 and Nov 30, 2016 — an in­crease of more than 25 per­cent year-on-year. The av­er­age price was 6,062 yuan per square meter, a 50 per­cent year-on-year in­crease.

Five de­vel­op­ers have each spent more than 70 bil­lion yuan on land pur­chases, and 16 de­vel­op­ers have each spent more than 20 bil­lion yuan.

“The 50 per­cent year-on-year growth of land pur­chase costs means that the sell­ing price will grow fur­ther, giv­ing more pres­sure to de­vel­op­ers to de­crease in­ven­to­ries, par­tic­u­larly those who de­velop projects in cities with stricter poli­cies for sales of res­i­den­tial prop­er­ties,” said Zhang Dawei, an an­a­lyst with Cen­taline Prop­erty Ltd.

About 70 per­cent of land parcels pur­chased by de­vel­op­ers in 2016 are in cities which have strength­ened con­trols over res­i­den­tial prop­erty trans­ac­tions, the re­port showed.

Mar­ket in­sid­ers said that land prices in some cities, as a re­sult of the short sup­ply of de­vel­opable land, are grow­ing to a level that makes it very dif­fi­cult for the de­vel­op­ers to achieve sat­is­fac­tory yields on their in­vested cap­i­tal.

“(In China) … mar­gins are too thin. If you look at land sales prices, they are now mul­ti­ples of cur­rent av­er­age sell­ing prices of al­ready ex­ist­ing build­ings; we don’t see that kind of growth go­ing for­ward,” said a fund man­ager quoted in re­search by PwC and the Ur­ban Land In­sti­tute which sur­veyed more than 600 in­vestors and de­vel­op­ers about their views on the real es­tate mar­kets in China

As land costs in key cities are get­ting higher, de­vel­op­ers are likely to look at com­mer­cial projects in­stead of just res­i­den­tial.” Sally Sun, part­ner, as­sur­ance and an­a­lyst with PwC

and other cities in Asia.

Sally Sun, part­ner, as­sur­ance and an­a­lyst with PwC, said de­vel­op­ers and in­vestors are shift­ing from pres­ti­gious lo­ca­tions in key cities to sub-cen­ters or subur­ban ar­eas, where sup­plies are more am­ple.

“As land costs in key cities are get­ting higher, de­vel­op­ers are likely to look at com­mer­cial projects in­stead of just res­i­den­tial, be­cause the suc­cess of projects such as shop­ping malls, of­fice build­ings and ho­tels de­pends more on man­age­ment and main­te­nance ca­pac­i­ties while lo­ca­tion plays a lesser role than in res­i­den­tial prop­er­ties,” said Sun.

De­vel­op­ers of res­i­den­tial prop­er­ties are also likely to pur­chase more land in satel­lite cities, tak­ing ad­van­tage of fast de­vel­op­ing com­mut­ing in­fra­struc­ture such as in­ter-city trains or sub­way sys­tems, en­abling more res­i­dents to have hous­ing at a lower cost, said Ken­neth Rhee, CEO of Huhan Busi­ness Ad­vi­sory (Shang­hai) and chief rep­re­sen­ta­tive of the Ur­ban Land In­sti­tute.

Many de­vel­op­ers, know­ing that land prices are high and the com­pe­ti­tion is fierce in land par­cel auc­tions, are still mak­ing ev­ery ef­fort to ac­quire land be­cause they have to se­cure a land re­serve pool for fu­ture de­vel­op­ment. Oth­er­wise, they will end up with no projects in the near fu­ture, said Al­bert Lau, CEO of Sav­ills China, in an in­ter­view ear­lier this year.

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