Plot price exceeds market estimates

0 Comment(s)Print E-mail Shanghai Daily, January 29, 2014
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Franshion Properties (China) Ltd, the real estate arm of Sinochem Group, agreed Tuesday to pay over 10 billion yuan (US$1.65 billion) for a 96,429-square-meter plot in Shanghai’s Zhabei District, a price beating earlier market hopes but one that observers felt is too high.

The land, designated for housing purpose, fetched 10.1 billion yuan, or a gross floor area price of 47,609 yuan per square meter, according to Soufun.com, operator of the country’s largest real estate website. The price paid was 111 percent above its starting price.

“It’s the second-most expensive plot ever sold in Shanghai by per square meter price and also the most costly residential land sold in three years in both Shanghai and the country,” said Zhan Zhenhua, an analyst with China Index Academy. “The high price is a reflection of the city’s shortage in prime housing land supply as well as the prevalent optimism among real estate developers which managed to register extremely robust sales over the past year.”

New homes adjacent to the plot in the Daning area are now sold at an average price of between 40,000 yuan and 50,000 yuan per square meter, according to Song Huiyong, research director of Shanghai Centaline Property Consultants Ltd.

“With a GFA price of over 47,000 yuan a square meter, homes built on this plot — in most cases it takes about two years from land acquisition to the release of the project — should cost at least 70,000 yuan per square meter,” Song said.

“But I don’t think a 20 percent growth for two consecutive years can be easily achieved.”

Lu Qilin, a researcher with Shanghai Deovolente Realty Co, also thought the price was too high.

“In my opinion, 35,000 yuan should be a reasonable price for this plot,” Lu said. “Now at a price of over 47,000 yuan, it seems that the developer has little choice except to prolong the development of the project in order to make a decent profit.”

Shanghai’s land sales hit a five-year high by value last year amid a strong appetite from developers.

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