Flour More Expensive Than Bread: Second Tier Land Prices Soar 180 pc

Land prices are selling for more than the surrounding finished real estate in some second-tier cities. Some explanations are given, such as ample capital, but lack of investable projects, as well as developers taking turns as "land king" to drive prices higher. Debt is playing a role with rising leverage, and local governments of course can use the cash. Exactly what led to trouble in 2014 and 2015.

March 25, "Shanghai nine" after the introduction of the Shanghai first land auction, breath shoot three regions, "the king." This auction total turnover of nearly 80 billion yuan, a premium rate of over 100%. Wherein the outer suburbs of Shanghai Jing Si shoot "Twin King", per square meter of floor price of nearly 4 million, almost twice the first half of the region's land.

However, second-tier cities land market heat more quickly than first-tier cities. Shanghai after the first land auction will end only two days, the city of Nanjing to refresh the total price and unit price "Lord" record. Nanjing Branch Unit "means" up to 4.5 yuan / square meter of floor price exceeds the Shanghai real estate transaction price. Five years ago, the area floor price of only 4752 yuan / square meter, that is to say, five years, land prices rose 8.5 times, an increase of even more than first-tier cities.

Recently, a number of second-tier urban land market "hot." The first four months of this year, Nanjing transactions containing 15 residential plots, shoot seven regional "sites"; early April, Suzhou auction 13 plots of up to 200% of the highest average premium rate, setting a three "sites" zone records; Hefei late April to sell six plots, won gold in a single day more than 11 billion yuan, the highest floor price premium rate 292.11%; Xiamen double the total price and unit price "Lord" also generated the end of April .

According to CB Richard Ellis monitoring, the total price of the conventional high "king" is mainly concentrated in the cities is different, Nanjing, Suzhou, Hefei, Xiamen and other second-tier cities have been recently "ground" are frequent. Agency data show that the first four months of this year, second-tier cities land transfer payments exceeded 11 billion yuan, accounting for the total land turnover of 70%, an increase of 280%; second-tier cities in the transaction floor price soared 180% year on year.

It is noteworthy that almost all first- and second-tier cities are hot spots appear "more expensive than bread flour" phenomenon, namely land auction floor price higher than the surrounding real estate prices in the sale. Reporters visited Shanghai Si Jing "new division sites" surrounding five in the sale of items found that its sales price in the range of 24,000 yuan -3.1 million, well below the nearly 4 million floor price. Suzhou recently sold most of the floor price of land has lead regional average selling price, which is competing with Jinhui Town Lot floor price of more area beyond the price 60%; Poly win Xiamen floor price is king regional average prices 1.6 times.

Yi Ju Yan Yuejin think tank research director, under the pressure of getting high threshold for first-tier cities and the "Shanghai nine" "deep six" and other policies, funds appear spillover effects, developers started hot rushed layout of second-tier cities. Centaline Dawei, chief analyst believes that "the recent second-tier cities of Nanjing, Suzhou and other 'king' frequent, even more than the surrounding land sale prices, indicating that second-tier cities real estate market risk is significantly increased."
Some reasons for the rise:
Why developers recently in a mad rush to second-tier cities?

- "Not short of money, lack of project." Raymond Group President Xu Hui said the developer before the development is highly dependent on bank loans, financing instruments now more diversified, and many organizations require the initiative to seek a loan, and the loan interest rate is very low. Last year, Xu Hui first domestic corporate bond interest rate of less than 5%, much lower than bank loans, "Housing prices are now not short of money, lack of project."

- Real estate funds into a "safe haven." Jones Lang LaSalle survey found that, in recent years, low-end manufacturing relocation of some second-tier cities, a large number of industrial capital for the purpose of increasing the value into the property market, making the real estate market has become a safe haven asset. "Contrast entity industry downturn and rising real estate between the particularly large."

Dongguan, an electronic components business owner told reporters that since last year, the company operating pressure, often Zhouzhuanbukai funds, he simply downsizing, part of the Shenzhen real estate investment funds; Shenzhen this year to tighten the restriction, he will switch funds Huizhou, Zhuhai and other cities.

- Developers mutually offer some sort of relief. The industry believes that developers Hence, it is an important reason for the old "King" also contributed to the rise in land prices steadily by making new "king" some sort of relief. After Shanghai Sijing king was born, the most excited than there are in the periphery of the sale of the project developers. Xiamen International Trade, Lake, gold and other housing prices have to "King" as a gimmick promotional price.

In addition to developers mutual "Sedan Chair", the developers occasionally "their Zuozhuang." Last year, the Commonwealth of Huarun Hua hair, Sunshine City Group in Shanghai are refreshed twice to create their own regional "sites" record.

With policy advice Zhang Hongwei, director of research that, in the same area after another to get to refresh the floor price record housing prices take to reduce the risk of "a good way." "Value of the land itself and the rising prices are 'king' in later batches listing market sales profit basis." One developer said, "only not get the land, there is no solution that can not be set."
The third one sounds like they are driving up land prices in order to drive up land prices... Meanwhile it is fueled with rising leverage:
Developers get the money come from? Reporter survey found that crazy to get to the back of the existing capital markets transfusion "credit" and also help lower cost of investment funds. Just in Beijing Changping ho throw 6.2 billion yuan China Merchants Shekou get to the last merger of listed real estate investment, fund-raising 11.8 billion yuan, substantially all of the company's investment in real estate projects; Xu Hui results, in January 2016, the company completed domestic private debt issued 2 billion yuan, less than 5% interest rate; CAC Group last year to 5.7 billion yuan in Shenzhen sweep the two plots, the refresh of the national unit price "Lord" record results, its asset-liability ratio reached 79.85 %.

In the real estate business use of the financial markets continue to add leverage to take back the land, the entire industry is rising liabilities. China Index Research Institute data show that in 2015 hundred companies asset-liability ratio to continue upward, average reached 75.4%, up 1.5 percentage points compared with 2014.

Insiders worry that housing prices high debt, high leverage is in default risk. "Housing prices in a project's problems may be a chain reaction, many financial institutions requires advance payment will result in a number of housing fund strand breaks."

Land Market "Crazy Feast" behind, is to support each other leveraged real estate developers and local governments plus land finance. China Construction Bank chief economist Huang Zhiling believe that some local governments to raise the benchmark land prices, and some rose more than doubled, indicating that it has not rid the land of financial dependence, still enjoying the land value-added benefits.

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