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Don't hold breath for property supply drop

By Chen Weihua (China Daily)
Updated: 2007-06-26 08:28

To find out if land prices are driving up property prices, all you need to do is look at the bidding for a plot of land in Shanghai last Thursday.

The Greentown Real Estate Group from East China's Zhejiang Province paid 1.26 billion yuan for a 59,253-square-meter plot in the city's northeast new Jiangwan area.

That's an average floor space price of 12,500 yuan per square meter, excluding construction and other costs.

It is the highest land price recorded in the area and it is twice as expensive as another neighboring plot bought by China Resources last year.

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Greentown Real Estate beat out rivals such as Wing Tai and Capital Land from Singapore, Orient Overseas from Hong Kong and Vanke and Gemdale from the mainland.

While some people may still blame Tomson Riviera, the most expensive apartment complex in China, for driving up housing prices, it is believed that last week's bidding will ignite another round of price hikes.

The limited supply of land in downtown Shanghai propelled developers to fight viciously for the Jiangwan plot last week. Their fervor is fueled by speculation that land prices are only going up.

It's estimated that the property built on the Greentown land will be sold for at least 22,000 yuan per square meter, compared with the average 15,000 yuan selling price in the area now.

While the price hike will be a big headache for home-buyers and possibly the developer, which has yet to find a way to sell it, the local government, which auctioned the land, is the largest beneficiary.

It's true that land price is not the only reason for rising housing prices, but it is surely an important driving force.

So as long as local governments that control scarce land resources remain interested in raking in profits from selling them, lower housing prices will remain wishful thinking.