Fangxing Property, a subsidiary of Sinochem, has acquired a chunk of land on Beijing's Guangqu Road for 4.06 billion yuan, the highest land transfer price ever in the city's public auction. The name of China's real estate game has reverted to "time for profit," which prevailed in the market in the bubbly days before the financial crisis.
Chen Jiqiang, general manager of Stanley & Partners, an investment bank to the real estate market, said recently that the situation in the market were especially good these days, and that doing real estate business in China would never lose money, for if a company had enough money to survive hard times it would finally make money somehow.
"Some companies bought land at very high prices, and housing prices went down soon after that. Then they fell asleep, and when they woke up, they found housing prices back up," Chen said at a recent summit for the comprehensive development of Chinese cities.
Though an exaggeration, Chen's story demonstrates why developers may lose time but not serious money. Land prices continue to rise, and developers who paid high prices a few years ago find today's prices even higher.
The peak for the boom in the land market occurred in 2007, when many developers bought land as if it were going to disappear. The real estate industry winter that set in in 2008 saw a freezing of credit making it impossible for many of these companies to develop the land they had gained. But the boom in the housing market since May this year has proven Chen Jiqiang's judgment to be correct.
Vanke, China's leading developer, bought a piece of land very close to Fangxing newly-acquired plot at about 11,400 yuan per square meter, which industry insiders said was far too high. Now prices in this area have risen to around 14,500 yuan per square meter.
Zhao Song, director of the land price department of the China Land Surveying and Planning Institute, recently said that it usually takes developers three years to develop the land they have acquired, and if land prices went up during that time most of the appreciation would go into developersâ€?profits.
Since land prices are now expected to rise, and housing prices are expected to rise with them, developers will naturally accelerate their purchases to fuel their further development.
Pan Shiyi, the chairman of SOHO, a major commercial property developer, says developers are not divine, and it would be hard for Fangxing to develop a 4.06 billion yuan piece of land. When asked, though, why developers still dare to buy land, he answered simply that it was because of the "good economy."
Li Lianzhong, an expert with the China Central Policy Research Office, said the change in developersâ€?attitudes towards land purchase was because of bank loans flowing into the real estate market. Some developers are also expecting coming inflation and have changed their strategy from "cash is king" to "buy more land".Â