Tuesday, August 11, 2009

Central Shanghai: Land Cost is 70% of Housing Price

Shanghai Land Price Reaches 70% of Housing Price Inside Inner Ring Road

OMP Reporter Liu Xiuhao

Brief article from today (August 11, 2009) about the proportion of the price of land to the price of housing (land is acquired from local state government in tender, auction, and listing that are open to all). Read previous posts about the report by the MoLaR on the constitution of current real estate housing prices and the proportion accounted for by the cost of acquiring land. Their survey was discussed in pervious posts.


Despite the announcement on July 23 by Ministry of Land and Resources that a special investigation shows land prices only make up a 23.2% proportion of housing prices, the Eastern China region and especially the Shanghai area has a rapid rise in the ratio of land price to housing price with the recent dramatic climb of land prices. Fangfang Land Consulting released the most recent quarterly “Long Silver Land Prices, East China Report” yesterday. It showed that of the 16 major urban land markets in the Eastern China region, the proportion of land prices to housing prices is in the range of 30%-50%. Of these, inside the inner ring road of Shanghai the range is 70%. In addition, Greenland Group made a triumphant advance in the land market for the first half of this year, passing Vanke in one sweep to become the new “land king”.

Small and Medium Developers are Even More Radical

Fangfang Property’s land price survey showed that, in July, the urban land price in cities such as Shanghai, Hangzhou, and Nanjing was 40% of housing prices, with certain areas surpassing a ratio of 60 percent. The level of land prices in Suzhou and Wuxi was slightly lower, accounting for approximately 30 percent of city housing prices.

Among these cities, recent land parcels leased by Hangzhou are mostly in the central city, and land price accounts for over 50% of housing price; Shanghai land prices are in the proportion range of 35%-50% of housing prices, but there is wide variation based on the land locations, with those near the inner ring line having a land price proportion of 70% of housing price. This shows the extreme shortage of land resources there. For the outer ring and outside areas of Shanghai, the land price proportion falls to only 40 percent or so.

With continued explosion in commodity housing market transactions, the sales returns for companies are higher across the board than their payments for acquiring land, so there is no financing pressure. Meanwhile, the issue of new land banks is far behind sales turnover rate, so the strong inclination to acquire land affects the predictions for the price of land. A comprehensive look at the companies competing for land in the market in Shanghai shows that large enterprises were relative cautious while small and medium developers were radical, daring to pay high prices.

Vanke is First in Land Acquisition Quantity

In the first half of the hear, Greenland acquired four land parcels on the open market, including office and commercial land in the city center and residential land in the suburbs. The characteristic of different districts and counties in the land bank is very vivid.

While Greenland was wantonly storing up, Dahua and Vanke increased their sales and reduced their land banking speed. Greenland became the new Shanghai “land king” with a total 3.41 million square meters of land bank area. Dahua is second with 2.65 million square meters. And Vanke has fallen to third with total banked areas of 2.32 million square meters.

Nationally, 15 brand-name real estate development companies (Vanke [Wanke], Poly [Baoli], Gemdale [Jindi], China Merchants, Greenland, Dahua, Forte [Fudi], China Overseas [Zhonghai], Jiangsu Xincheng, Greentown, Yanlord [Renheng], Sun Hung Kai [Xinhongji], CITIC Pacific, Hutchinson Whampoa, and Hopson) increased their land banks by 9.40 million square meters in area, with most of the land parcels bought for under 2,500 yuan/square meter. Of these, 5 companies increased their land banks by over 1 million square meters, with Vanke and Poly being first and second in total amounts, acquiring 3.48 million square meters and 1.96 million square meters respectively.

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