High profit margins driving more developers into the game: experts
Large real estate enterprises in China are reportedly competing to purchase land in cities surrounding Beijing in a number of ways, which experts say will only become more fierce due to large profits behind rising home prices and lack of land resources.
Developers in China are attempting to enter property markets near Beijing through investment promotions from local governments, cooperation between powerful enterprises and mergers and acquisitions (M&As), domestic news portal eeo.com.cn reported on Sunday.
Cooperative purchasing
"Purchasing land by a developer alone has risks and demands a large amounts of funds, which causes developers to enter the market through cooperating with others," Yan Yuejin, an expert from E-house China R&D Institute, told the Global Times on Sunday.
The high cost of land reduces property companies' confidence to bid and their lack of familiarity with a tract of land may lead to inappropriate investment, Yan explained, noting developers would prefer cooperations or M&As to relieve money pressure and save more time to investigate projects.
Chinese land developer China Fortune Land Development Co (CFLD) said on August 16 that one of its subsidiaries aims to buy a 100 percent stake in Zhongke Langfang Technology Valley Co for 2.30 billion yuan ($347 million), according to an announcement on the company's website.
According to CFLD, the assets include rights to develop 5,000 mu (335 hectare) of land in High Technology Park in the Langfang development district, rights to use 604.5 mu of industrial land and real estate management rights for buildings occupying 26,000 square meters in the park.
For its project in Dachang Saint-Raphael Town in Langfang, North China's Hebei Province, State-owned steel enterprise Shougang Group attracted investment from large developers like Shanghai's Shimao Property Holdings, according to eeo.com.cn.
"The market has developed so many ways to acquire land, which reflects the hunger of property developers amid diminishing land resources," Liu Yuan, the senior research manager of Centaline, told the Global Times on Sunday.
Growing demand
A factor behind the intensifying competition in cities like Langfang is the surge in housing demand in these markets due to rising home prices in first-tier cities including Beijing, Shanghai and Shenzhen in South China's Guangdong Province, experts noted.
The Beijing government has rolled out a series of measures in recent years to limit the number of homes each family can buy, the Xinhua News Agency reported.
"The purchasing limits, combined with skyrocketing property prices which young people can not afford have led to the spillover of housing demand from Beijing to cities bordering the capital," Liu noted.
And the relatively cheap price for land in areas surrounding Beijing means a great profit margin for property developers.
According to a report in local daily newspaper Beijing Times, the average price of land in downtown Beijing was 38,000 yuan in 2015, while land in the three counties in Langfang that share a border with Beijing - Yanjiao, Dachang and Xianghe - sold at around 1,500 yuan.
Developers will continue to actively purchase land in this region because of positive market expectations but they will take cautious measures like M&As to reduce risks, Yan stated.
He predicts home prices in the cities surrounding Beijing will double, which will drive more developers into the game.
On August 17, Langfang announced on its website that no developer can advertise their projects without obtaining a permit for advance sale of commodity houses.
Meanwhile, real estate companies are forbidden to raise funds through pre-sales, according to the Langfang government.
Policies have been enacted to regulate the property market, but they will likely not impact developers' enthusiasm to purchase land, Yan noted.
