Big city land-grab sowing seeds of next China property boom

| Reuters
BEIJING In the Chaoyang district of northeast Beijing, a nondescript wall covered in patriotic
posters protects one of the city's most valuable treasures: a dirt field containing nothing but a few
scattered trees.
Last month the block sold for 3.3 billion yuan ($515 million), according to Beijing Municipal Bureau
of Land and Resources data, meaning the cost to the developer of each apartment built will be above
the price at which nearby homes currently change hands, once a commitment to build a quota of
affordable housing is factored in.
"The flour is more expensive than the bread," said Guo Yi, market director at Yahao, a real estate
consulting agency in Beijing, using a Chinese proverb to describe how undeveloped land in some
prime locations has become more expensive than second-hand apartments. "We see increasing
risks."
Such speculative pressure underlines a growing distortion in China's housing market.
While property prices in much of China are still falling, a rebound is under way in the biggest cities,
bringing with it the return of land speculation that could stoke another bubble and widening the
economic gap between "tier 1" centers and the rest.
In the Chaoyang project, the winning developer, a joint venture between Poly Real Estate Group and
Beijing Capital Development, agreed that more than half the housing on the site would be built
under a government affordable housing scheme.
The scheme aims to allow more of China's middle and lower income households to share the dream
of owning their own home, but also makes the project more expensive for the developer.
Analysts said the 41,964 sq meter (451,697 sq ft) plot equated to a maximum 117,498 sq meters
(1,264,738 sq ft) of apartment space, meaning the developer was paying 28,086 yuan per sq meter,
rising to more than 60,000 yuan per sq meter when the cost of building the affordable housing was
included.
At that price, the commercial housing to be built on the site would need to be sold for more than
100,000 yuan ($15,600) per sq meter, around triple the price of existing homes nearby, for the
project to be profitable, analysts said.
Another option would be to try to resell the plot at a profit.
"It sounds crazy to me that prices could reach so high," said a woman surnamed Wang who lives in a
nearby affordable housing project. "It just doesn't seem worth it to me."
DIVERGENT TREND
Beijing's buoyant land market typifies an emerging trend. Leading developers are buying new lots of
land in major cities amid a backdrop of improved property sales and a loosening monetary
environment.

"Developers are making land grabs in big cities because everyone thinks first-tier cities are safe,"
said a senior official at a medium-sized listed property company in Beijing, who declined to be
identified as he was not authorized to speak to the media. "We are worried about risks of
overheating."
On a nationwide basis, house prices posted their first annual rise in 14 months during October, a
weighted average gain of 0.1 percent. On a monthly basis, prices rose 0.2 percent, official data
showed.
Even a modest recovery in a sector that accounts for 15 percent of gross domestic product is a
welcome boost for an economy heading for its weakest growth in 25 years.
But the gains were largely concentrated in major cities, reflecting an increasingly unbalanced
housing recovery.
Prices in Shenzhen rose 39.9 percent in October from a year earlier, while the were up 10.9 percent
in Shanghai, and 6.5 percent in Beijing. In monthly terms prices rose in only 27 of 70 cities,
however.
Local government revenue from land sales more information in China's 10 biggest cities rose 24
percent in October from a year earlier, a private survey showed.
While there are ceilings on land prices, some local governments are auctioning land bundles - land
and a commitment to build a set amount of affordable housing - that makes the cost of building nonsocial housing much higher.
That has the effect of pushing up property prices in major cities, where demand is strong. But
outside the top-tier cities, excess supply and a weaker economy are discouraging new construction
and investment.
The average residential land prices in first tier cities, including Beijing, Shanghai, Guangzhou and
Shenzhen, reached 17,680 yuan per sq meter in the third quarter of this year, compared with 2,377
yuan in smaller third tier cities, according to data from China's land ministry.
"Land is more expensive than second hand houses in some parts of Beijing, but not everywhere,
because developers are confident that real estate prices in will continue to rise," said a property
developer at one of China's state-owned enterprises.
"I wouldn't say the Beijing property market is overheated, it's just warm."
(Reporting by Xiaoyi Shao and Sue-Lin Wong; Additional reporting by Nate Taplin; Editing by John
Mair and Alex Richardson)
http://www.reuters.com/article/us-china-economy-housing-idUSKBN0TP0UM20151206