Rental Policy Outcome: Land Prices Collapse 90pc in Shanghai

No, the market isn't collapsing (yet?), but reality is setting in. Shanghai sold land rights valued at less than 6,000 yuan per sqm this month. The buyers are state-owned enterprises that will rent and lease the property rather than sell it. Whether this has any long-term effects on the market, it clearly shows how wildly overvalued Chinese real estate is compared to the underlying cash flows. Different parcels of land aren't directly comparable, but Shanghai was selling land with values above 50,000 yuan per sqm in 2016. The "rental only" value of the land substantially lower, possibly as much as 90 percent if the plots are comparable.

This must have a psychological effect on the market even if the government tightens controls. Talk of overvalued property is no longer idle speculation, or shown with non-market examples such as various P/E measures such as home price to average annual income. This is a concrete example of how much a developer is willing to pay if renting is the only option.

Shanghai Daily: Winning plots meant for rental homes
The two blocks of the transaction, one located in Pudong New Area Zhangjiang South, the land area of ​​about 6.5 hectares, can be built construction area of ​​about 130,000 square meters, from Shanghai Zhangjiang (Group) Co., Ltd. race, the transaction price of 724 million Yuan, the transaction floor price of 5569 yuan / square meter; a Jiading District Jiading Metro, the land area of ​​about 2.85 hectares, can be built construction area of ​​7.13 million square meters, from Shanghai Jiading New Town Development Co., Ltd., the transaction price of 4.24 Billion, the transaction floor price of 5950 yuan / square meter. The two plots of the competition, are state-owned enterprises.
An article in iFeng breaks down the numbers, finding the total cost for the developers will be about 12,000 yuan per sqm, at that price they will generate 4.5 percent returns at current rental/lease rates.
From the results of the transaction, it can be described, both in reason, but also unexpected!

Reasonable understanding of the level, because after the two pieces of land has been announced (July 4) to take the only rent not to sell the model, so after the transaction, the two land is mainly used for leasing purposes, which is beyond reproach The

Previously, so that everyone is full of doubt, what will Shanghai how to operate "only rent not sell" mode. If the market in full accordance with the operation, then the real estate developers is difficult only through rental income, cover costs, profit, cash flow level will be affected.

However, today's auction results tell us that we have to worry about (at least storm brother to worry about).

According to reports on the news, we can easily find that the last two auctions of land prices are: Zhangjiang plots, the transaction floor price of 5569 yuan / square meter; Jiading plots: the transaction floor unit price For 5950 yuan / square meter

Maybe a friend would say it was wrong? Is it less a zero? According to the data provided by the news (storm brother count several times), the final floor price is indeed less than 6000.

6,000 yuan floor price, the final developer of the cost of how much?

From the price formula we can roughly calculate it.

According to the price formula: house price = land cost (30%) + development costs (10%) + Jian'an cost (20%) + tax (15%) + profit (25%).

The formula is the real estate developers when selling the formula, and now only rent does not sell mode, has not applicable, especially the profit level was cleared, the tax may also have concessions.

In other words, the new rent only mode, the cost of housing should be: land cost + development costs + Jian'an cost + tax (specifically there will be reduced, tentatively counted as 10%).

The floor price 6000 into the new housing cost formula, then the cost will be about 12,000.

How much is the rental rate?

At present, in Jiading plots around, renting a set of 90 square meters about 4100.

So the calculation, the developers through the rent to recover the cost only need: 21 years! Annual rate of return is about 4.5%.

This rate of return has been able to make developers live very comfortably.
iFeng: 楼市传来大消息!楼面价破6千 炒房客彻底傻眼

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