By WANG Tingting
“Houses sold well in February and March, but everyone is worried that we are running out of inventory,” said a manager at a large developer. His company hasn’t bought any land in the past two years. Now it can no longer afford to shop around.
Land sales are heating up again as the real estate market stabilizes and recovers after a two-year slump. News such as “sixty developers bid for one plot,” and “only one in fifty qualifies to bid” are making headlines. In some cities, the bidding has become so competitive that an inside joke is that one has to pray before an auction.
‘Central locations in top-tier cities’
Major cities are reporting record-high auction signups. Premium rates have increased from last year’s 4 percent to around 15 percent in first and second-tier cities, and can easily go north of 20 percent in smaller ones. In the city of Yangzhou in Jiangsu Province, a plot was sold at a 50 percent premium after 102 rounds of bidding.
Non-state developers are showing no less enthusiasm than their state-backed peers. Hefei and Nanjing reported a significant increase in sign-ups and land purchases among non-state bidders. In the first two auctions in Hangzhou this year, they contributed to 58 percent of sales.
The focus is on “central locations in top-tier cities.” ZHANG Hai, co-CEO of Vanke, said developers are paying more attention to macroeconomics and that his company will buy land in “core cities.”
“We need to buy in top-tier cities. In addition to that, we will build ‘upgrades’ in smaller places,” said a spokesperson of Dahua Group. The idea is that it’s fine if a buyer wants to move into a larger and better house, as long as it’s not a second home she hopes to flip one day.
In a recent survey by China Index Holdings, 40 percent of potential home buyers said they hoped to upgrade. Sales of houses that cost 100,000 yuan or more per square meter in Beijing hit a record high last year despite the overall bear market.
Changing practices
Only about 65,000 square meters are for sale in Shanghai’s April auction, a fraction of the 2.1 million offered in the same auction last year. Many plots will be in the most expensive areas. Beijing and Chengdu also increased premium-location supply by 50 percent this year. In Changsha, 96 percent of land for sale this year is marked premium.
This also means developers don’t need to cough up a huge sum all at once to buy large tracts of land, as they did before.
Bidding has become more competitive. It’s not uncommon for developers to participate in several auctions around the country and come home with nothing. Some who haven’t had much luck in big cities are now trying in lower-tier ones for land designated for “upgrades.”
‘Location, location, location’
Some are still cautious after last year’s crisis. A manager at a Top 30 developer said his company will prioritize liquidity this year. Even those looking to expand are unlikely to wage a pre-2020 style land grab. ZHANG Xuzhong, of Longfor Properties, said his company will be constantly reassessing the market and investing in a targeted manner. Dahua will only bid in “popular cities.”
The old maxim of “location, location, location” is still true. But those who don’t have the money or luck to get hold of premium locations console themselves that design and quality matter as much as locations given the demand for upgrades. “The key is still the product itself. Market positioning determines sales,” said a manager at a state-backed developer.
