On the surface, the multibillion yuan price tag hardly seems worth it.
When developer Evergrande (03333.HK) splurged 4.16 billion yuan (US$667 million) at the end of last month for a site in Daxing district, it may have been buying a prime spot in one of the capital city’s major commuter towns but half of the site had already been set aside for public rental housing flats and the rest of the homes slapped with a price cap of 15,000 yuan per square meter.
The project is hardly the stuff that real estate fortunes are made of but Evergrande is not the only one diving into these shallow profit waters. Jinke (000656.CN), a mid-sized developer from Chongqing, bought a nearby plot at 2.36 billion yuan but it will only be able to name its price on a fraction of the site after public housing and capped-price homes are factored in.
Beijing Uni-Construction Group also secured a site for 605 million yuan, but the group will only be able to set prices on the 30 percent of the floor space.
That’s because the Beijing municipal bureau of land and resources gazetted in January that no less than 40 percent of the city’s fresh land supply this year will go to public housing programs, with capped-price homes and commercial flats getting 30 percent each.
Despite the razor-thin profit margins on these projects, developers don’t seem to have lost any enthusiasm for them. Beijing Daily reports that the city has raked in record-high land revenue of more than 100 billion yuan as of April.
Analysts say these deals can be real bargains in a broader sense. For one thing, public rental flats and capped-price homes mainly cater to first-time homebuyers rather than speculators, and this market segment is largely immune to economic upheavals and government clampdowns. These buyers can help sustain sales growth for the firms as a downturn looms.
Also, a more subtle rationale is that firms that support government housing initiatives may have an edge when the securities watchdog mulls reopening the funding tap for A-share listed realty counters.
Beijing officials want the greater land supply for public housing projects and smaller homes to bring down home prices, which have defied repeated curbs. But some observers don’t believe it will work.
No fewer than 600,000 immigrants flock to the capital each year, according to Beijing’s statistics bureau, but new home supply has been on the slide. Last year just 85,125 new homes came on the market, compared to 140,000 in 2008.
Wang Lina, an analyst with the China Academy of Social Sciences’ Institute of Finance and Banking, told the Economic Observer that when the government fails to increase and expedite land supply, public rental flats and capped-price homes will be snapped up by first-time buyers and the unit price of commercial homes will soar due to their relative scarcity under the new supply policy.
So while media reports are pointing to a rapid cool-down in the mainland’s property market, upgraders in the capital are struggling to get a good deal.
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