The Forbidden CIty Gate in Beijing.
PHOTO: AFP/Getty Images
The Forbidden CIty Gate in Beijing.

Story highlights

Land prices have soared at recent auctions in Beijing as the property market heats up again

Comes despite a long campaign by the government to cool it down

Welcome development for local governments, which rely on land sales

(Financial Times) —  

Land prices have soared at recent auctions in Beijing in a sign that the Chinese property market is heating up again despite a long campaign by the government to cool it down.

A large parcel of land in Tongzhou, a Beijing suburb, sold this week for Rmb1bn ($160m), 491 per cent more than the starting price – the highest premium paid at an auction in the capital in two years.

A recovery in the Chinese land market began towards the end of last year and is a welcome development for local governments, which rely on land sales as an important source of fiscal revenue. But the price surge has triggered criticism that officials could be laying the groundwork for a property bubble by restricting the supply of land.

In an unusual twist, the leading critic has been none other than the developer who won the Tongzhou auction. Ren Zhiqiang, an outspoken property tycoon, took to his microblog to launch a broadside against the government after placing the winning bid.

“I know that paying a high price for land is risky,” Mr Ren, chief executive of Huayuan Group, said in one of a series of posts on his official Weibo account, a Twitter-like website.

“This is not a happy thing for my company, nor is it happy for society. But in order to survive, I have no choice but to struggle on amid the [government’s] monopoly on land and the supply shortage,” he said.

Mr Ren added: “Because of the fear of sky-high prices, the government has reduced the number of competitive auctions and so manufactured a land famine that has led to sky-high prices. Does the government think that reducing the supply of land will be a good way of controlling the rise in property prices?”

With a buildable area of 122,798 square metres, the Tongzhou land parcel sold at an average price of Rmb8,184 per sq m – about twice the average monthly income in Beijing. Located 20km from the city centre, Tongzhou has in the past attracted younger couples looking for more affordable living options, but property prices are now climbing quickly there.

The government has used a battery of policies over the past three years to rein in the housing market. It has barred residents from buying second homes in major cities, raised mortgage rates and invested heavily in the construction of public housing.

Under the weight of these measures, property prices in most parts of the country stopped rising last year and in some cities fell as much as 10 per cent. However, concerned by the economic slowdown, the government has loosened monetary policy and investors have started to pile back into real estate, even though officials have vowed to keep the property market controls in place.

Land sales have typically been very volatile in China, increasing 161 per cent in 2009 in 300 key cities when the property market was hot, but then falling 15 per cent last year, according to analysts with Citi.

In a report published on Wednesday, the Citi analysts said they expected the land market to be strong this year as developers aggressively buy land. But they added that the government’s commitment to keep housing prices from rising too quickly should be a force for stability.

“We believe developers are now more rational in managing their balance sheets and seeking sustainable, rather than explosive, growth,” they said.