Xinhua Insight: Record land prices prompt call for more control efforts
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E-mail Xinhua, September 6, 2013
Insiders and experts have called for more government efforts to cool the property market and keep the overall housing prices in check as recent months saw a drastic surge in the land prices and a home price rebounce in major cities.
Some of them even warned that home prices may spiral out of control in September and October considering rocketing land prices.
RED-HOT PROPERTY MARKET
Recent months have seen a drastic surge in land prices, especially in first-tier cities.
On Thursday, a land parcel in downtown Shanghai sold for 21.77 billion yuan (3.56 billion U.S. dollars) during a land auction, setting a record for the municipality.
The auction followed one held in Beijing on Wednesday, during which a land parcel was sold at a price of more than 73,000 yuan per square meter of proposed construction, also a record high for the capital.
Upon construction completion, industry insiders estimate the property sale price to be 150,000 yuan per square meter or higher.
As of Wednesday, Beijing has sold 140 parcels of land with a total transaction price of 109.9 billion yuan in 2013, 4.4 times the figure from the same period last year, according to statistics gathered by the market research department of Home Link, a leading Chinese property agency.
Cities including Hangzhou and Suzhou also sold land at record high prices on Thursday.
"According to information released by land and resources bureaus in major cities, land sales in cities like Beijing, Shanghai, Hangzhou, Chengdu and Nanchang may risk spiraling out of control in September," warned Zhang Dawei, director of Centaline Property's research center.
The skyrocketing land prices in major cities have led to a rise in housing prices and home purchase demand.
After a land parcel for residential buildings was recently sold for 35,000 yuan per square meter of proposed construction in the southern Chinese city of Guangzhou, a residential project near the land raised its sale price from 25,000 yuan to 35,000 yuan per square meter.
In July, two residential housing projects sold all their apartments in one day, and two others sold more than 90 percent of their apartments within 24 hours.
BULLISH EXPECTATIONS
Researchers and industry insiders have bullish expectations that prices in the sector will continue to rise.
Among 30 real estate developers surveyed by Standard Chartered Bank recently, 23 thought home prices will see a 10-percent rise over the next six months and six others expected a more drastic rise.
Twenty-three enterprises said they planned to buy land in the next three to six months, including 10 saying their level of demand is higher than usual.
Gu Yunchang, deputy head of the China Real Estate and Housing Research Association, said home prices will rise steadily for some time as most developers still have the financial muscle to purchase land and construct residential buildings.
In addition, major cities have become more attractive to developers because more parcels of prime land with better locations and higher investment returns have gone on sale recently, said Zhang Xu, analyst with Centaline Property's research center.
High hopes had been pinned on new tightening measures unveiled in March and considered the toughest attempt yet to rein in the country's red-hot home prices.
Under the measures, local authorities were asked to significantly increase income tax on the profit homeowners make from house sales, and raise the downpayment and mortgage loan rates for buyers purchasing a second property.
The measures underlined the government's efforts in this regard. Since 2010, it has introduced a raft of control policies, including third-home purchase bans, property tax trials and construction of low-income houses.
However, according to Centaline's Zhang Dawei, with the measures having limited influence on home prices, potential buyers have lost patience and even fear they will have to purchase houses at much higher prices if they do not buy soon.
GOVERNMENT EFFORTS
Local governments have been introducing new rules in land auctions to slow down price rises.
For the land sold at a record high price in Beijing on Wednesday, a new bid limit and tie-breaking rule was applied in the auction. The starting bid was set at 1.8 billion yuan with the highest bid limited to 2.1 billion yuan. As more than one party was willing to bid the highest price, a condition kicked in which ruled that the bidder willing to spend the most on hospital construction won the auction.
The government set the standard hospital construction cost at 8,000 yuan per square meter, and Sunac China Holdings Ltd. won the bid as it offered to invest in 278,000 square meters of hospital construction, the largest floor area offered among the bidders.
In another Beijing land auction on Wednesday, Evergrande Group bought a parcel of land for 4.04 billion yuan with the requirement that 51,500 square meters of apartments built on the land be offered as public rental housing and the remaining apartments be sold at prices lower than two million yuan each and 22,000 yuan per square meter.
It was the first land auction in Beijing this year to set a price cap on commodity apartments built on the land as an additional requirement.
Statistics show the average residential housing price in the area stands at 25,000 yuan per square meter or higher. Industry insiders say Evergrande Group is bound to earn a lot less under the price cap.
Real estate developers and agents have voiced opposition to the price-cap auction rule, saying it will force enterprises to lower construction quality in the chase for higher profits.
Hu Gang, professor with the Management School of Jinan University, said first-tier cities should apply housing price caps in more land auctions in order to lower market expectations and help keep the overall housing price in check.
Meanwhile, more and more people are counting on the central government to introduce property tax to more cities.
However, Shanghai and Chongqing, in which property tax has been charged for more than two years, have still seen house prices rise continuously.
Academics warned there is a possibility that homeowners will try to pass on the costs of property tax in selling their houses at a higher price than they would have otherwise.
"Creating a nationwide housing information network should come before everything, for it helps the government to control the price with appropriate measures, including property tax," said Zheng Xinli, deputy managing director with the China Center for International Economic Exchanges. Endi
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