GBA Brief

Summer sizzle: land shortage spurs record bids in Shenzhen

An auction for residential land in Shenzhen attracted record deposits of Rmb98.7 billion ($14.3 billion) from more than 80 developers on Monday. The winners paid the highest possible premiums, which the government caps at 45%. What does it say about the city’s property sector?  

The last time that developers were scrambling for land in Shenzhen was three years ago, before cooling measures took some of the heat out of the market. The fever was back this week, when the government sold five residential sites totalling about 170,000 square metres for Rmb22.4 billion, the biggest single-day sale in the city.

The bidding was intense, with each of the plots getting at least 10 rival offers, Securities Times reports. The most expensive parcel went to Logan Property Holdings for Rmb6.6 billion, with Yuexiu Property Company, the Guangzhou city government’s investment unit, paying Rmb5.9 billion for the second-costliest block.

All of this for land where some of the space has to be given up to the government for affordable housing, and where owners will be banned from flipping their units for the first three years.

A mismatch in supply and demand is spicing up land values in the city. The local population is projected to reach 18 million by 2025, up from the 13 million today, according to World Cities Culture Forum, a London-based organisation. But the supply of new residential land is scarce and likely to meet just 40% of new demand between now and 2035, says the Guangdong Housing Policy Research Centre.

Monday’s sale was the first auction of residential land this year and only 11 parcels of land went under the hammer in 2018, with most being sold to a developer that has committed to putting them up for rent.

The imbalance has been driving up prices at such a pace that David Ji, head of research & consultancy for Greater China at Knight Frank, thinks that Shenzhen’s property prices could catch up with Hong Kong within a decade, spurred even faster by the impact of the GBA masterplan.

“The government is pushing for the development of an international innovation and technology hub, as well as the improvement of infrastructure and connectivity. These will be the key drivers for the housing markets in the region,” he added.

Knight Frank expects home prices in the Greater Bay Area to tick up by 5-7% this year, compared to 2-3% in tier-one cities like Shanghai and Beijing, and 3-5% in cities in the next level down.

Excluding Hong Kong, Macau and Shenzhen, some of the biggest price increases in second-hand homes (where sales restrictions are fewer) have been recorded in Zhongshan, where values have surged more than a third since the GBA plan was first mooted, according to creprice.cn.

The bet there is that the opening of the Shenzhen-Zhongshan Bridge in 2024 is going to be more than positive for local property prices, by cutting the commuting time between the two cities to just 20 minutes.

In a similar way, prices in Zhuhai put on a spurt with the building of another massive new bridge a few miles to the south, linking it directly to Hong Kong.

You might think that the new travel options from the western side of the Pearl River would prompt a few moments of reflection from the bullish bidders in Shenzhen. But sentiment there is just too strong, helped by the city’s burgeoning reputation as Asia’s tech capital (in hardware, at least).

The property barons are also betting that the trade war with Washington is going to hit the economy harder in the months ahead, putting pressure on policymakers to go for growth by relaxing the curbs on real estate sales.

If not, the winners of Monday’s auction will struggle to make a profit, analysts said.