Land costs seen surging in first-tier cities

Property developers are facing rising prices for land in first-tier cities, which are likely to lead to higher house prices despite the government's curbing policy, market analysts said Thursday.

A piece of land in Huangpu, Shanghai was auctioned for 2.77 billion yuan ($440 million) Tuesday or 36,176 yuan per square meter, the highest price for a single piece of land in the city this year, China Securities Journal (CSJ) reported Tuesday.

The price of a home that is built on this piece of land could be as much as 70,000 yuan per square meter, the paper reported Wednesday, citing Xue Jianxiong, director of the China Real Estate Information Corporation.

Meanwhile, a piece of land near the East Third Ring Road in Beijing's Chaoyang district was offered for auction Tuesday, with a base price of 2 billion yuan for 59,152 square meters, equal to 33,831 yuan per square meter.

"It's a record high in terms of the base price," He Tian, research director with China Index Academy, told the Global Times Thursday.

Considering the prime location in Beijing's Central Business District, the eventual price could be higher than that of Wanliu, a piece of land in Beijing's Haidian district, which was auctioned in July this year at a price of 42,000 yuan per square meter, he said.

The price of land in first-tier cities like Beijing and Shanghai is surging due to limited supply, said He.

Whoever wins the auction will most likely develop high-end residential apartments, and the increased land cost could lead to higher prices of these apartments, He said.

The recovery in home sales in the second half of this year boosted developers' cash flow, which enabled them to buy more land for future development, Li Zhanjun, head of research at E-house China R&D Institute, told the Global Times Thursday.

Local governments are under pressure to repay debts by the end of the year, which also explains why land sales are on the rise, Li said.

But it is too early to say that a new land rush is taking place and that housing prices will take off again, Liu Yuan, senior manager with Centaline China Property Research, told the Global Times Thursday.

The amount of spending on land by major property developers including Vanke and Poly Group accounts for 15.2 percent of their sales from January to October this year, down 4.8 percentage points from the same period of last year, Liu said.

This is far less than the figure in 2007 when property developers' spending on land was equivalent to 98 percent of sales, he said.

Many developers are still cautious about buying more land, given the continuing curbing policy, Liu said.